Mr. Buffett: “There is so much that’s false and nutty in modern investing practice and modern investment banking, that if you just reduced the nonsense, that’s a goal you should reasonably hope for.”
I agree entirely. There is much that is done in portfolio management and corporate finance that does not pass the common sense test. Layering complexity on stupid ideas - that leverage always increases value, that securitization can make you a more valuable company - do not make them any less stupid.
Mr. Buffett said he was once asked by a student from the University of Chicago, a hub of modern portfolio theory, “What are we learning that’s most wrong?” To which Charlie Munger quipped, “How do you handle that in one session?”
My question to Mr. Buffett would be a simple one: What exactly is your understanding of Modern Portfolio Theory? I would wager that he would come back with Markowtiz portfolios and the CAPM. If you define modern as circa 1964, he would be right. If not, he has a lot of catching up to do.
Mr. Buffett on the efficient market hypothesis, the idea that all information is instantly priced into the market: “There’s this holy writ, the efficient market theory. How do you teach your students everything is priced properly? What do you do for the rest of the hour?”
Mr. Buffett probably does not realize this but the efficient market hypothesis is really a warning to those portfolio managers who try to trade on information - earnings announcements and acquisitions, for isntance - and day traders. To be honest, 99% of investors would be saved a lot of money, if they followed the suggestions of efficient market theorists. Let's face reality. If you define an efficient market as one where investors cannot easily take advantage of market imperfections, markets are efficient to most investors on most assets most of the time... One reason that Mr. Buffett continues to generate excess returns is that he is able to strike inside deals with managers... Do you think you or I would have been able to get the deal he got from Goldman?
Mr. Buffett on complex calculations used to value purchases: “If you need to use a computer or a calculator to make the calculation, you shouldn’t buy it.”
Spoken like a Luddite... How about an abacus, Mr. Buffett? Maybe a slide rule?
Mr. Buffett on the use of higher-order math in finance: “The more symbols they could work into their writing the more they were revered.”
Actually, I do share Mr. Buffett's concern that common sense is sometimes overwhelmed by mathematics. However, the people who are most revered in finance - Harry Markowtiz, Merton Miller and Gene Fama- are surprisingly down to earth in explaining their ideas.
Mr. Munger on the same theme: “Some of the worst business decisions I’ve ever seen are those with future projections and discounts back. It seems like the higher mathematics with more false precision should help you but it doesn’t. They teach that in business schools because, well, they’ve got to do something. ”
What would Mr. Munger do instead? Look backwards and discount forward? What part of forecasting does he think is pointless? And does he not agree with the proposition that a dollar today is worth than a dollar in year? If not, he should be sentenced to spend a year in a high inflation economy (say Zimbabwe)...
Mr. Buffett adds: “If you stand up in front of a business class and say a bird in the hand is worth two in the bush, you won’t get tenure…. Higher mathematics my be dangerous and lead you down pathways that are better left untrod.”
Depends upon your chances of getting the birds in the bush, right? If you feel that you have a 60% chance of getting the birds in the bush, is it not worth the trade off? No wait. Talking about probabilities probably is higher mathematics and I should not do it... My bad...
Mr. Buffett on the persistence of bad ideas in finance: “The famous physicist Max Planck was talking about the resistance of the human mind, even the bright human mind, to new ideas…. And he said science advances one funeral at a time, and I think there’s a lot of truth to that and it’s certainly been true in finance.”
It is true. In any discipline, for every three ideas you come up with, only one will move forward. But the solution to this is not to stop having new ideas but to churn out more...
1. Stagnant or declining revenues: Perhaps the most telling sign of a company in decline is the inability to increase revenues over extended periods, even when times are good. Flat revenues or revenues that grow at less than the inflation rate is an indicator of operating weakness. It is even more telling if these patterns in revenues apply not only to the company being analyzed but to the overall sector, thus eliminating the explanation that the revenue weakness is due to poor management (and can thus be fixed by bringing in a new management team).
2. Shrinking or negative margins: The stagnant revenues at declining firms are often accompanied by shrinking operating margins, partly because firms are losing pricing power and partly because they are dropping prices to keep revenues from falling further. This combination results in deteriorating or negative operating income at these firms, with occasional spurts in profits generated by asset sales or one time profits.
3. Asset divestitures: If one of the features of a declining firm is that existing assets are sometimes worth more to others, who intend to put them to different and better uses, it stands to reason that asset divestitures will be more frequent at declining firms than at firms earlier in the life cycle. If the declining firm has substantial debt obligations, the need to divest will become stronger, driven by the desire to avoid default or to pay down debt.
4. Big payouts – dividends and stock buybacks: Declining firms have few or any growth investments that generate value, existing assets that may be generating positive cashflows and asset divestitures that result in cash inflows. If the firm does not have enough debt for distress to be a concern, it stands to reason that declining firms not only pay out large dividends, sometimes exceeding their earnings, but also buy back stock.
5. Financial leverage – the downside: If debt is a double-edged sword, declining firms often are exposed to the wrong edge. With stagnant and declining earnings from existing assets and little potential for earnings growth, it is not surprising that many declining firms face debt burdens that are overwhelming. Note that much of this debt was probably acquired when the firm was in a healthier phase of the life cycle and at terms that cannot be matched today. In addition to difficulties these firms face in meeting the obligations that they have committed to meet, they will face additional trouble in refinancing the debt, since lenders will demand more stringent terms.
From a valuation perspective, using conventional discounted cash flow models can lead us to over value declining and distressed firms, where the possibility of distress is high. I think that we need to adjust the values that we obtain from DCF valuations for the likelihood that these firms will not make it. While there is no simple way to estimate the probability of failure, there are clues in the market that we can use to make reasonable estimates. I have a paper on the topic that you can download (if you are interested)
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1428022
Your comments are always appreciated.
Sorry about the long hiatus between posts but I took family time off to go to California. I am three weeks away from a new semester starting but I am on my way to Peru and Brazil over the next few days to talk about valuation. I have never been to Peru before and am looking forward to seeing Lima for the first time. I have been to Brazil once or twice each year since 1998 and I am looking forward to this trip just as much.
While I will never know as much about Brazil as I would like to, I have had the opportunity to watch the market change over the last decade. While each emerging market is different, I think that some of the changes I have observed in Brazil are common across emerging markets, as they mature:
1. From Macro to Micro: When I did my first valuation seminar in Brazil for the first time in 1998, almost every question that I got during the seminar related to macro variables, with little or no attention paid to individual companies. If fact, we spent more time discussing inflation than we did discount rates, cash flows or terminal value. Coming off the hyperinflation of the previous decade, this focus was understandable and reflected the belief that if you were right about the macro variables, company-specific information mattered little. In recent years, attention has shifted more towards company characteristics, including managerial competence and the quality of investing and financing choices , a healthy development, in my view
2. Foreign to Local Currency: In the late 1990s, spilling over into the first half of the decade, almost every valuation I saw of a Brazilian company and much of the capital budgeting was done in US dollars. Not only was there a profound distrust of the local currency (Brazilian Reais) among analysts, but the Brazilian government and large Brazilian corporations seemed to share that distrust by issuing long term debt only in US dollars. Estimating a risk free rate in Brazilian Reais was an impossible exercise. It is only in the last few years that the resistance has broken down, with the Brazilian government issuing long term Reai bonds and valuations in local currencies.
3. Foreign to Domestic Investors: When I did my first few sessions in Brazil, appealing to foreign investors (especially US institutional investors) seemed to be the key priority for corporate treasurers and Brazilian investment banks. One measure of maturity has been the increasing focus on domestic investors in recent years, with foreign investors being viewed as icing on the cake.
Like any emerging market, there have been political and economic shocks along the way, but the sessions that I do in Brazil in a couple of days will resemble closely the sessions I do in New York or Frankfurt. To me, that is a healthy development. The value of an asset is a function of its cash flows, growth and risk and that lesson should not vary across markets. I will let you know how this Latin American jaunt goes...
ublicly traded firms in the health care business were as follows. In terms of dollar profits, pharmaceutical firms deliver much higher profits than other parts of the health care business. While $130 billion in pretax operating profits is large, note that the aggregate pretax operating income for the market is $3.5 billion. In terms of net profits, pharmaceutical firms account for almost 14% of the net profits for the entire market. The problem with dollar profits is that they have no moorings. A profit of $ 20 billion sounds large by itself, but does not look that large, if compared to revenues of $ 1 trillion or capital invested of $ 500 billion.
les. From the perspective of all claim holders in the firm, a more complete measure is the operating margin, estimated by dividing operating profits by revenues. The latter is less likely to be skewed by financing decisions. After all, a firm that borrows more will have less net income after interest expenses and a lower net margin. Looking at the health care business again, here are the numbers.
stors as the return on equity, obtained by dividing net income by equity invested in the business or to the entire firm as the return on invested capital, estimated by dividing after-tax operating income by capital invested (debt plus equity) in the business. Measuring the actual capital invested in a business is a difficult task and most practitioners fall back on using book values. Here are the return on equity and capital numbers for health care firms.Momentum | Contrarian | Opportunisitic | |
Short term (days to a few weeks) | · Technical momentum indicators – Buy stocks based upon trend lines and high trading volume. · Information trading: Buying after positive news (earnings and dividend announcements, acquisition announcements) | · Technical contrarian indicators – mutual fund holdings, short interest. These can be for individual stocks or for overall market. | · Pure arbitrage in derivatives and fixed income markets. · Tehnical demand indicators – Patterns in prices such as head and shoulders. |
Medium term (few months to a couple of years) | · Relative strength: Buy stocks that have gone up in the last few months. · Information trading: Buy small cap stocks with substantial insider buying. | · Market timing, based upon normal PE or normal range of interest rates. · Information trading: Buying after bad news (buying a week after bad earnings reports and holding for a few months) | · Near arbitrage opportunities: Buying discounted closed end funds · Speculative arbitrage opportunities: Buying paired stocks and merger arbitrage. |
Long Term (several years) | · Passive growth investing: Buying stocks where growth trades at a reasonable price (PEG ratios). | · Passive value investing: Buy stocks with low PE, PBV or PS ratios. · Contrarian value investing: Buying losers or stocks with lots of bad news. | · Active growth investing: Take stakes in small, growth companies (private equity and venture capital investing) · Activist value investing: Buy stocks in poorly managed companies and push for change. |
| Global Region | Number of firms | Effective tax rate | Taxes as % of Revenues |
| Australia, NZ and Canada | 3834 | 26.65% | 3.38% |
| Developed Europe | 4818 | 28.49% | 2.51% |
| Emerging Markets | 17079 | 21.63% | 3.15% |
| Japan | 3584 | 38.30% | 2.39% |
| United States | 5472 | 29.35% | 3.01% |
| World | 34787 | 27.17% | 2.82% |
| Least corrupt countries in the world | Most corrupt countries in the world |
| 1. New Zealand | 1. Somalia |
| 2. Denmark | 2. North Korea |
| 3. Finland | 3. Myanmar |
| 4. Sweden | 4. Afghanistan |
| 5. Singapore | 5. Uzbekistan |
| 6. Norway | 6. Turkmenistan |
| 7. Netherlands | 7. Sudan |
| 8. Australia | 8. Iraq |
| 9. Switzerland | 9. Haiti |
| 10. Canada | 10. Venezuela |
Step 3: Value Synergy
|
Value the combined firm
with synergy built in. This may include
a. A higher growth rate in
revenues: growth synergy
b. Higher operating margins,
because of economies of scale
c. Lower taxes, because of tax
benefits: tax synergy
d. Lower cost of debt:
financing synergy
e. Higher debt ratio because of
lower risk: debt capacity
Subtract the value of
the target firm (with control premium) + value of the bidding firm (pre-acquisition).
This is the value of the synergy.
|
Step 2: Control Premium
|
Value the company as if
optimally managed. This will usually mean that investment, financing and dividend
policy will be altered:
Investment Policy: Higher returns on projects and divesting
unproductive projects.
Financing Policy: Choose a financing mix/ type that reduces
your cost of capital
Dividend Policy: Return unused cash, especially if you are
punished for it.
Value of control = Target company value with optimal management - Status quo target company value from step 1.
|
Step 1: Status Quo Value (Target firm)
|
Value the target company as is,
with the existing management’s investment, financing and dividend policy
(even if it is optimal or efficient)
|
![]() |
| APPLE SIMULATION RESULTS: END OF 2012 |
Arithmetic average
|
Geometric Average
|
|
Last 5 years
|
6.46%
|
4.42%
|
Last 10 years
|
9.66%
|
8.33%
|
Last 20 years
|
9.60%
|
8.28%
|
Last 50 years
|
8.30%
|
6.90%
|
Scenario
|
Treasury bond rate
|
Outlook for stocks
|
More of the same (anemic economic growth, low inflation)
|
Stays low
|
Neutral
|
Stronger economic growth, low inflation
|
Rises to reflect higher real growth
|
If economic growth translates into earnings growth,
neutral. If not, mildly negative.
|
Low economic growth, high inflation
|
Rises to reflect higher inflation
|
Negative. Higher required returns on stocks, no
offsetting positive.
|
Higher economic growth, low inflation, Fed Magic
|
Stays low
|
Positive
|
Real Economic Growth
|
|||
High
|
Moderate
|
Low/Negative
|
|
High
|
Negative
for bonds
Mildly positive
for stocks
|
Negative
for bonds
Negative
for stocks
|
Negative for bonds
Negative
for stocks
|
Moderate/Low
|
Negative
for bonds
Positive
for stocks
|
Negative
for bonds
Mild
positive for stocks
|
Neutral/
Positive for bonds
Negative
for stocks
|
Deflation
|
Neutral
for bonds
Positive
for stocks
|
Neutral
for bonds
Negative
for stocks
|
Positive
for bonds
Negative
for stocks
|
Microsoft
|
Cisco
|
Merck
|
|
Acceptance
|
Not sure. The company still believes that it
can produce hardware (smart phones, tablets), using the same strategy that
worked for it on software (overload the product with features and overwhelm the opposition).
|
This is a company that had incredible success in the
1990s with its strategy of buying small technology companies and converting
them into commercial successes. That strategy failed over most of the last
decade. The company seems to be suggesting that it will scale back in the future, but while it has announced layoffs, its acquisition pace has not slackened.
|
Merck has been a mature pharmaceutical company for
two decades but its R&D policies suggest that it sees itself differently.
While there are noises coming from the company that are good (increased buyback, accountability in R&D), the company has been slow to adapt.
|
Change Agent
|
Steve Ballmer is leaving and a new CEO is coming in.
That is the good news. The bad news is
that this new CEO is being picked by the same board of directors at Microsoft
that seems convinced that nothing is wrong with the company.
|
The CEO who built this company up in the late 1990s was John Chambers. The CEO who made bad acquisitions during the last decade was also John Chambers. The CEO of the company that claims to have seen
the error of its ways is once again John Chambers. Unless he has multiple
personalities, I don't see how he can pull this off.
|
Who is Merck’s CEO? This may just be ignorance on my part but I had to
look it up: it is Ken Frazier, who has worked at Merck since 1992. I compliment the gentleman for keeping a low profile but change agents are not sell-effacing characters.
|
Focus/Plan
|
None that I can see (yet). The acquisition of Nokia
suggests that Microsoft is going to keep trying to go after the smartphone
business. Even if it
succeeds, that strikes me as more opportunistic and 'me too" than visionary.
|
The company has told us it will not go for growth for the sake of growth, but it continues to do large acquisitions.
|
The evidence suggests that Merck is slowly coming to
an acceptance that its historic model is running out of steam (stock buyback,
talk about cutting R&D) but there is little sense of what is going to
replace the existing model.
|
Rebirth Assessment
|
Change in CEO provides hope, at least for the moment.
|
Actions speak louder than words. If Cisco can go a
year without major acquisition & a new focus emerges, chances improve.
|
Looks like the best case scenario is that it is heading to the equivalent of
corporate “senior” living.
|


Valuation Setting
|
Differential Precision
|
$20 in an
envelope
|
(5) None. |
| A mature, money making company in a stable macroeconomic environment | (4) Very little (unless I cheat and use inside information, which would of course bring the SEC's wrath to bear on me). The estimates come from historical data and are unlikely to shift very much, since the macroeconomic setting is stable. Valuation modeling is trivial and you can use historical PE ratios or stable growth cash flow discount models to value the company. |
| A mature, money making company in an unpredictable macroeconomic environment | (3) Your differential advantages can come from being able to incorporate the macroeconomic uncertainty into company forecasts and valuing the company. If the macroeconomic uncertainty is large enough (say, at crisis levels), other investors may stop trying to value even mature companies (remember late 2008), essentially conceding the game to you. |
| A young, money losing company in a stable macroeconomic environment | (2) Your differential advantage comes from researching the business the company is in, understanding the company's products and being willing to make forecasts (knowing that you are going to be wrong). Again, with enough uncertainty, other investors will not even try to value these companies , focusing instead on rules of thumb, unusual value metrics (value per user) or short term numbers (earnings next quarter). |
| A young, money losing company in an unpredictable macroeconomic environment | (1) Your differential advantage will come from just trying to make estimates, in the face of immense uncertainty, when everyone else has long since given up any attempt to estimate value. |
The
“University” Moat is deepest at
|
The Online Challenge
|
|
Screening
|
More
selective” schools that have reputations based on long histories and
tradition. It is also self-perpetuating, since your selectivity allows them
to attract the best students who burnish their reputations further.
In softer disciplines, where it is difficult, if not impossible, for an outsider to observe output or make judgments on quality.
|
Online
entities have a "chicken & egg" problem, since they need good reputations to
be selective and need to be selective to generate those reputations. However,
they may have a much better chance of breaking through
(a) if they can team up with an entity that has a reputation (a university like Stanford/MIT or a pure screener like the College Board) or
(b) in areas where the
skill sets of graduates are measurable and observable. (Engineering, software coding etc.)
(c) in disciplines where there is a common certification exam (accounting, law).
|
Structuring
|
Colleges
that help students create customized study or degree programs, built around their interests
and objectives.
|
Online education is currently chaotic when it comes to structuring. While course offerings proliferate, guidance for novices on structuring & sequencing these courses is limited or non-existent.
|
Classes
|
Colleges
that offer classes that are well taught by “star” faculty and built around
interaction, group learning, individualized feedback and informative grading
systems (that measure learning and not attendance/memorization) have an edge.
|
Online classes are often too passive, focused on delivering content and mechanized testing/grading. Creating more interactive, dynamic online classes as well as hybrid variations, which are online much of the time, but have in-person meeting components, may help bridge the gap.
|
The
Network
|
Colleges
that create networks among students that continue long
after they graduate, augmented by small group networks such as sororities/ fraternities
and campus clubs/activities.
|
Fostering
close networks when your interactions are all online is more difficult ( but as Facebook and Linkedin's success show, it is not impossible) and serendipitous contact (like the ones you have on the college green with strangers) is very limited.
|
Career
Advice/ Placement
|
Colleges
that provide career guidance early in college life, followed by access to
good placement services (with exclusive and privileged access to prized
employers) .
|
Getting
employers to trust your “products” as much as they trust established
institutions (colleges & universities) will take time, though it should be
easier in professions where the proof of competence can be tested.
|
Entertainment
|
Colleges
with strong sports teams and cultural activities on campus.
|
Entertainment options online are getting richer but it will be difficult to
match the real thing. Online universities don't have basketball teams or play bowl games.
|
Education
|
Colleges
that try to students how to learn & prepare them for life.
|
Same
challenge, but magnified because you are restricted to do this online.
|

![]() |
| Yahoo: The sum of the parts |
![]() |
| Yahoo versus Google: No mas! |
| Yahoo: Estimated Enterprise Value using Median Multiples from Internet software & services |
![]() |
| EV/Sales versus Expected revenue growth: Internet software & services |
![]() |
| Yahoo! Japan - Historical Performance |
![]() |
| Median Multiples: Advertising, Retail and Online Retail |
| Baidu Multiples Applied to Alibaba; Enterprise values adjusted for cash, cross holdings and debt |
![]() |
| Imputed value versus Intrinsic value |
![]() |
| Narratives and Value Drivers |
Narrative
|
Total Market
|
Market Share
|
Uber Cut
|
Cost of capital
|
Failure Probability
|
Value for Uber
|
Car
service company, facing significant competitive and regulatory hurdles, forced
to make trade off of lower profitability for market share.
|
$100
billion
|
10%
|
10%
|
12%
|
10%
|
|
Car
service company with potential to expand into other logistics markets,
significant market share, sustained profitability (Mine)
|
$100
billion
|
10%
|
20%
|
12%
->8%
|
10%
|
$5.9 billion + $2-3 billion for disruption option
|
Car
service company with dominant market share (from networking effects) and
sustained profitability (New
York Times)
|
$100
billion
|
50%
|
20%
|
12% ->8%
|
0%
|
|
Logistics
company with expansion of car service business model into other logistics
businesses, while preserving profitability.
|
$600
billion
|
5%
|
20%
|
12%
->8%
|
0%
|
![]() |
| Normalized PE used average earnings over last 10 years & My CAPE uses my inflation adjusted normalized earnings. Shiller PE is as reported in his datasets |
![]() |
| T statistics in italics below each correlation; numbers greater than 2.42 indicate significance at 2% level |
![]() |
| PE measures: 1969-2013 |
![]() |
| One-year and Two-year stock returns |
![]() |
| Intrinsic valuation of S&P 500: June 2014 |
![]() |
| Future value of portfolio in 2 years (when correction occurs) |
![]() |
| Payoff to Passive Defense against Bubble (Correction of 40% in 2 years) |
![]() |
| Ten-year T.Bond rate versus Fundamental Interest rat (GDP Growth + Inflation) |
![]() |
| The Fed Effect = T.Bond rate - Fundamental (Negative = Fed Easing, Positive = Fed Tightening) |
![]() |
| The Fed's role in Equity Risk Premium Expansion |
![]() |
| Apple: Price versus Value (My Estimates) |
![]() |
| Facebook: Earnings Reports & Price Reaction |
![]() |
| Facebook: User Numbers, Revenue Breakdown & Invested Capital |
![]() |
| Life Cycle, Pricing Metrics & Multiples |
![]() |
| Effective Tax Rate: 2013 |
![]() |
| Marginal & Effective Tax Rates: 2013 |
![]() |
| Updated using trailing 12-month values |
![]() |
| Dividends & Buybacks at all US firms (Source: Compustat) |
![]() |
| Gross cash (Dividends+Buybacks) and Net Cash (Dividends+Buybacks-Stock Issues) as % of Market Cap |
![]() |
| Dividends and Buybacks in 2013: Data from S&P Capital IQ |
![]() |
| Debt as % of capital & multiple of EBITDA: All US companies (Source: Compustat) |
| Data from 2013: Debt burdens at buyback versus no-buyback companies |
| Capital Expenditures & Net Capital Expenditures = Capital Expenditures - Depreciation; US firms in 2013 |
![]() |
| Operating Structure for Alibaba |
![]() |
| From HP Investor Presentation Deck |
|
Annual Cost Savings
|
Value Change
|
|
$0.00
|
$0.00
|
|
$500.00
|
$601.00
|
|
$1,000.00
|
$7,386.00
|
|
$1,500.00
|
$14,170.00
|
|
$2,000.00
|
$20,936.00
|
|
$2,500.00
|
$27,738.00
|
|
$3,000.00
|
$34,522.00
|
![]() |
| My valuation of Amazon in January 2000 (The Dark Side of Valuation) |
![]() |
| Comparison of my forecasts in 2000 to actual numbers |
![]() |
| From Amazon financial filings |
![]() |
| Largest Retail Companies: Trailing 12 month data (on 10/29/14) |
![]() |
| Source: Bloomberg |
![]() |
| Source: Bloomberg |
![]() |
| Source: Mashable, Does Social Media Advertising Really Work? |
![]() |
| Source: Twitter's presentation at Analyst Day |
![]() |
| Valuation spreadsheet: TwitterAug2014.xls |
“We’re in a better position to get focused companies who can respond more quickly…. We felt like this was the right time to take advantage of setting up two scaled companies who will be a little bit more focused and a lot more nimble.” Meg Whitman, CEO of HP, on CNBC
“ This transaction creates two industry leaders, each with significant reach and scale, and will allow us to continue our focus on customers, innovation and execution. …That will allow a greater level of strategic focus, greater strategic agility, and greater strategic flexibility. Simply put, we believe the premium on focus and agility will allow each business to compete and win in this exciting environment going forward. So we can move more quickly and make targeted, focused investments.. So I think, an independent PayPal unequivocally will have the focus and agility to play across the board in this fast moving payment space.” John Donahoe, CEO of EBay, on conference call with analysts
![]() |
| EBay: Operating History |



![]() |
| Source: S&P Capital IQ |
![]() |
| Simple averages of 3-month returns across stocks |
![]() |
| Correlation between lagging oil price changes & leading macro variables: 1974-2013 |
|
Market size (in millions)
|
Description
|
|
|
A1. Urban car
service
|
$100,000
|
Taxi cabs, limos
& car services (urban)
|
|
A2. All car service
|
$150,000
|
+ Rental Cars+ Non-urban car service
|
|
A3. Logistics
|
$205,000
|
+ Moving + Local Delivery
|
|
A4. Mobility
Services
|
$285,000
|
+ Mass Transit + Car Sharing
|
New user effect on market growth
|
Annual growth rate (next 10 years)
|
B1. No new users (no growth effect)
|
3.00%
|
5.32%
|
|
B3. Increase total market by 50% over next 10
years
|
7.26%
|
B4. Double market size over next 10 years
|
10.39%
|
Market Share
|
Description
|
|
C1. No network effects
|
5%
|
Open competition in every market
|
C2. Weak local network effects
|
10%
|
Dominance in a few local markets
|
C3. Strong local network effects
|
15%
|
Dominance in multiple local markets
|
C4. Weak global network effects
|
25%
|
Weak spillover benefits in new markets
|
C5. Strong global network effects
|
40%
|
Strong spillover benefits in new markets
|
Competitive
Advantage
|
Revenue Slice
|
Description
|
D1. None
|
5%
|
Unrestricted entry + No pricing power
|
D2. Weak
|
10%
|
Unrestricted entry+ Some Pricing Power
|
D3. Semi-strong
|
15%
|
Unrestricted entry + Pricing Power
|
D4. Strong & Sustainable
|
20%
|
Restricted entry + Pricing Power
|
Reinvestment
|
Sales/Capital Ratio (Higher number= Less investment)
|
E1. Minimal capital needs, no acquisitions
|
10.00
|
E2. Minimal capital needs, small acquisitions
|
5.00
|
E3. Service company median
|
3.00
|
E4. Technology company median
|
2.50
|
E5. US company median
|
2.00
|
E6. Capital intensive company median
|
1.50
|
Risk Profile
|
Cost of Capital
|
F1. Lowest decile of US companies
|
7.00%
|
F2. 25th percentile of US companies
|
7.50%
|
F3. Median of US companies
|
8.00%
|
F4. 75th percentile of US companies
|
10.00%
|
F5. Ninth decile of US companies
|
12.00%
|
Corporate Finance
|
Valuation
|
|
My site (Stern NYU)
|
||
Apple iTunes U
|
||
Yellowdig
|
||
YouTube
|
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| Return spreads based on trailing 12 month returns: January 2015 |
Input
|
Measure
|
Comments/ Data sets
|
|
1
|
Risk free rate
|
Use the prevailing 10-year US
T.Bond rate as the risk free rate in US dollars, even if you plan to
compute the cost of capital in another currency.
|
Fight the urge to normalize, tweak
or otherwise mess with this rate. It is
what you can make today on a risk less investment, no matter what your views
on it being too low or high.
|
2
|
Business Risk (Unlevered beta)
|
Break the company down into
businesses, using an operating metric (revenues work best) and compute the
weighted unlevered beta across the businesses.
|
Company breakdown: In company’s
annual report or financial filings
Beta of businesses: My unlevered betas by business (broad groups) or you can create your own subgroups.
|
3
|
Financial Risk (Debt to equity and
levered beta)
|
Lever the beta using the market
debt to equity ratio for the company today. (If you prefer to use a target
debt to equity ratio, make sure it is based on market values.
|
Market value of equity: Use the market capitalization as
market value of equity.
Market value of debt: For debt, use book value as your proxy for market
value, or better still convert book value to market value. Add the present value of operating leases
to debt.
|
4
|
Equity Risk Premium
|
Obtain the geographical breakdown
of the company’s revenues (or other operating metric, if you don’t like
revenues). Take a weighted average of the ERP of the countries/regions that
the company operates in.
|
Geographical Breakdown: The company’s revenues will be in its
financial statements, though it is not always as clear and detailed as you
would like it to be.
ERP by country: My ERP by country.
|
5
|
Cost of debt
|
If you can find a corporate bond
rating for your company, use it to get a default spread and a cost of debt.
If you cannot find a bond rating, estimate a bond rating for the company and
a default spread on that basis. If you are doing the latter, add a default
spread for the country to get the pre-tax cost of debt.
|
Bond Rating: If available, you
should be able to find it at S&P or online.
Synthetic Rating: You can use this
spreadsheet to get a synthetic rating for your company.
Rating-based default spread: My lookup table of default spreads for ratings classes.
Country default spreads: My estimates
|
6
|
Marginal tax rate
|
Multiply the pre-tax cost of debt
by (1- marginal tax rate) to get the after-tax cost
|
Marginal tax rate by country: KPMG estimates of country tax rates
|
7
|
Debt Ratio
|
Use the market values of debt and
equity (from step 3)
|
See step 3
|
8
|
Currency change
|
If you want to convert the US
dollar cost of capital into another currency, add the differential inflation
rate (between that currency and the US dollar) or better still, scale up
the US$ cost of capital for the
difference in inflation.
|
The inflation rate in the US can
be estimated as the difference between the US 10-year T.Bond Rate and the US
TIPs rate. For other countries, you can use the actual inflation rate last
year as a proxy for expected inflation.
|
![]() |
| Market Capitalization at the end of each year (S&P Capital IQ) |
![]() |
| Age: Number of years from founding of company to 2015 |
![]() |
| Pricing as of February 2015, Trailing 12 month values for earnings and book value |
![]() |
| Based on February 2015 Pricing & Trailing 12 month numbers: 2807 US technology and 6076 non-technology companies. |
![]() |
| FCFE = Cash left over after taxes, debt payments and reinvestment; Firm value = Market Cap + Total Debt; Cash Return = Dividends + Buybacks - Stock Issues |
![]() |
| Shareholding as of February 2015 |
![]() |
| Through Sept 30, 2014; Source: National Venture Capital Association (NCVA) |
![]() |
| The New GM: Investment, Revenues and Profits from 2010-2014 |
![]() |
| Tech vs Non-tech companies in US market (Source: Cap IQ) |
![]() |
| Source: S&P Capital IQ (February 2015 data) |
![]() |
| Box: Stock Price & Volume (Yahoo! Finance) |
![]() |
| Source: Economic Policy Institute (EPI) |
![]() |
| Source: Compustat ExecuComp |
![]() |
| Source: Compensation Advisory Partners |
![]() |
| Spreadsheet |
![]() |
| Spreadsheet |
![]() |
| Spreadsheet |

![]() |
| Source: Ken French's online data |
![]() |
| Source: Ken French's online data |
![]() |
| Source: Ken French's online data |
![]() |
| Source: Ken French's online data |
![]() |
| US 10-year T.Bond rates at the end of each year |
![]() |
| Ten-year Government Bond Rates: End of each period |
![]() |
| Source: FRED (Federal Reserve in St. Louis) |
![]() |
| Source: FRED |
![]() |
| Source: FRED- Constant Maturity Rates on 3-month and 10-year treasuries |
![]() |
| Source: Damodaran.com (Implied ERP) |
![]() |
| Data from Compustat & FRED: Computed across all money-making companies |
![]() |
| Raw data from Capital IQ with my estimates of costs of capital by year |
![]() |
| Operating Income and Invested Capital, adjusted for leases treated as debt |
![]() |
| Source: Wall Street Journal |
![]() |
| Source: Wall Street Journal |
![]() |
| For a $100 million investment for 10% of a company, with a 90% chance of a capital event. |
![]() |
| Numbers in red are declines in value/share |
![]() |
| Raw data from Compustat: All money-making, non-financial service firms |
![]() |
| Source: Compustat; All money-making, non-financial service US firms |
![]() |
| Risk free rates in July 2015 |
![]() |
| Weighted average PBV ratio in July 2015 |
![]() |
| Vale Revenue Breakdown (2014) |
burgeoning middle class to the mix, you have the makings of a marketing wet dream. Visions of millions of cell phones, refrigerators and cars being sold were enough to justify attaching large premiums to companies that had even a peripheral connection to China. The events of the last few weeks have made the China story a little shakier, but it will undoubtedly return, once things settle down.

![]() |
| Spreadsheet |
![]() |
| Numbers & Valuations in US dollars for all companies (Folder with valuations) |
![]() |
| Implied ERP Spreadsheet (January 2015) |
![]() |
| ERP By Day |
![]() |
| Liquidity classes, based on turnover ratio = $ Trading Value/ $ Market Cap |
![]() |
| Net Debt/EV = (Total Debt- Cash)/ (Debt + Market Cap - Cash) |
![]() |
| Spreadsheet with valuation |



![]() |
| Base: S&P 500 on September 3= 1951.13, T.Bond rate = 2.27%; ERP = 6.34%, g=6.30% |
| Motive | Test |
|---|---|
| Undervaluation | Acquisition Price < Status Quo Value |
| Control | Acquisition Price < Restructured Value (Status Quo Value + Value of Control |
| Synergy | Acquisition Price < Restructured Value + (Value of Combined company with synergy - Value of Combined company without synergy) |
| Capital Mix | Operating Metrics | Geographical Mix | ||||
|---|---|---|---|---|---|---|
| Interest-bearing Debt | $51,504 | Revenues | $45,762 | Latin America | $18,849.00 | 42.03% |
| Lease Debt | $1,511 | Operating Income (EBIT) | $14,772 | Africa | $- | 0.00% |
| Market Capitalization | $173,760 | Operating Margin | 32.28% | Asia Pacific | $5,040.00 | 11.24% |
| Debt to Equity ratio | 30.51% | Effective tax rate | 18.00% | Europe | $4,865.00 | 10.85% |
| Debt to Capital ratio | 23.38% | After-tax return on capital | 12.10% | North America | $16,093.00 | 35.88% |
| Bond Rating | A2 | Reinvestment Rate = | 50.99% | Total | $44,847.00 | 100.00% |
| Capital Mix | Operating Metrics | Geographical Mix | ||||
|---|---|---|---|---|---|---|
| Interest-bearing Debt | $12,550 | Revenues | $22,130 | Latin America | $7,812 | 35.30% |
| Lease Debt | $368 | Operating Income (EBIT) | $4,420 | Africa | $6,853 | 30.97% |
| Market Capitalization | $75,116 | Operating Margin | 19.97% | Asia Pacific | $3,136 | 14.17% |
| Debt to Equity ratio | 17.20% | Effective tax rate | 26.40% | Europe | $4,186 | 18.92% |
| Debt to Capital ratio | 14.67% | After-tax return on capital | 10.32% | North America | $143 | 0.65% |
| Bond Rating | A3 | Reinvestment Rate = | 16.02% | Total | $22,130 | 100.00% |
| SAB Share of Other Associates | ||||
|---|---|---|---|---|
| Operating Metrics | Geographical Mix | |||
| Revenues | $6,099.00 | Latin America | $- | 0.00% |
| Operating Income (EBIT) | $654.00 | Africa (mostly South Africa) | $2,221 | 36.42% |
| Operating Margin | 10.72% | Asia Pacific | $2,203 | 36.12% |
| Effective tax rate | 25.00% | Europe | $1,675 | 27.46% |
| After-tax return on capital | 11.00% | North America | $- | 0.00% |
| Invested Capital | $4,459 | Total | $6,099 | 100.00% |
| SAB Share of MillerCoors JV | ||||
| Operating Metrics | Geographical Mix | |||
| Revenues | $5,201.00 | Latin America | $- | 0.00% |
| Operating Income (EBIT) | $800.00 | Africa (mostly South Africa) | $- | 0.00% |
| Operating Margin | 15.38% | Asia Pacific | $- | 0.00% |
| Effective tax rate | 25.00% | Europe | $- | 0.00% |
| After-tax return on capital | 11.05% | North America | $5,201 | 100.00% |
| Invested Capital | $5,428 | Total | $5,201 | 100.00% |
| SAB Miller | + 58% of Coors JV | + Share of Associates | SAB Miller Consolidated | |
|---|---|---|---|---|
| Revenues | $22,130.00 | $5,201.00 | $6,099.00 | |
| Operating Margin | 19.97% | 15.38% | 10.72% | |
| Operating Income (EBIT) | $4,420.00 | $800.00 | $654.00 | |
| Invested Capital | $31,526.00 | $5,428.00 | $4,459.00 | |
| Beta | 0.7977 | 0.6872 | 0.6872 | |
| ERP | 8.90% | 6.00% | 7.90% | |
| Cost of Equity = | 9.10% | 6.12% | 7.43% | |
| After-tax cost of debt = | 2.24% | 2.08% | 2.24% | |
| Debt to Capital Ratio | 14.67% | 0.00% | 0.00% | |
| Cost of capital = | 8.09% | 6.12% | 7.43% | |
| After-tax return on capital = | 10.33% | 11.05% | 11.00% | |
| Reinvestment Rate = | 16.02% | 40.00% | 40.00% | |
| Expected growth rate= | 1.65% | 4.42% | 4.40% | |
| Number of years of growth | 5 | 5 | 5 | |
| Value of firm | ||||
| PV of FCFF in high growth = | $11,411.72 | $1,715.25 | $1,351.68 | |
| Terminal value = | $47,711.04 | $15,094.36 | $9,354.28 | |
| Value of operating assets today = | $43,747.24 | $12,929.46 | $7,889.56 | $64,566.26 |
| + Cash | $1,027.00 | |||
| - Debt | $12,918.00 | |||
| - Minority Interests | $1,183.00 | |||
| Value of equity | $51,492.26 |
| SABMiller | ABInBev | Global Alcoholic Beverage Sector | |
|---|---|---|---|
| Pre-tax Operating Margin | 19.97% | 32.28% | 19.23% |
| Effective Tax Rate | 26.36% | 18.00% | 22.00% |
| Pre-tax ROIC | 14.02% | 14.76% | 17.16% |
| ROIC | 10.33% | 12.10% | 13.38% |
| Reinvestment Rate | 16.02% | 50.99% | 33.29% |
| Debt to Capital | 14.67% | 23.38% | 18.82% |
| Status Quo Value | Restructured | Changes made | |
|---|---|---|---|
| Cost of Equity = | 9.10% | 9.37% | Increases with debt ratio |
| After-tax cost of debt = | 2.24% | 2.24% | Left unchanged |
| Debt to Capital Ratio | 14.67% | 18.82% | Set to industry average |
| Cost of capital = | 8.09% | 8.03% | Due to debt ratio change |
| Pre-tax return on capital | 14.02% | 17.16% | Set to industry average |
| After-tax return on capital = | 10.33% | 12.64% | Result of pre-tax ROIC change |
| Reinvestment Rate = | 16.02% | 33.29% | Set to industry average |
| Expected growth rate= | 1.65% | 4.21% | Result of reinvestment/ROIC |
| Value of firm | |||
| PV of FCFF in high growth = | $11,411.72 | $9,757.08 | |
| Terminal value = | $47,711.04 | $56,935.06 | |
| Value of operating assets today = | $43,747.24 | $48,449.42 | |
| + Cash | $1,027.00 | $1,027.00 | |
| + Minority Holdings | $20,819.02 | $20,819.02 | |
| - Debt | $12,918.00 | $12,918.00 | |
| - Minority Interests | $1,183.00 | $1,183.00 | Value of Control |
| Value of equity | $51,492.26 | $56,194.44 | $4,702.17 |
| Inbev | SABMiller | Combined firm (no synergy) | Combined firm (synergy) | Actions | |
|---|---|---|---|---|---|
| Cost of Equity = | 8.93% | 9.37% | 9.12% | 9.12% | |
| After-tax cost of debt = | 2.10% | 2.24% | 2.10% | 2.10% | |
| Cost of capital = | 7.33% | 8.03% | 7.51% | 7.51% | No changes expected |
| Operating Margin | 32.28% | 19.97% | 28.27% | 30.00% | Cost cutting & Economies of scale |
| After-tax return on capital = | 12.10% | 12.64% | 11.68% | 12.00% | Cost cutting also improves return on capital |
| Reinvestment Rate = | 50.99% | 33.29% | 43.58% | 50.00% | More aggressive reinvestment in shared markets |
| Expected growth rate= | 6.17% | 4.21% | 5.09% | 6.00% | Higher growth because of reinvestment |
| Value of firm | |||||
| PV of FCFF in high growth = | $28,732.57 | $9,806.49 | $38,539.06 | $39,150.61 | |
| Terminal value = | $260,981.86 | $58,735.57 | $319,717.43 | $340,174.63 | Value of Synergy |
| Value of operating assets = | $211,952.80 | $50,065.35 | $262,018.16 | $276,609.92 | $14,591.76 |
| Company | Revenues in 2014 | Revenues (2015) | Growth Rate (2015) |
|---|---|---|---|
| Lyft | $125 | $300 | 140.00% |
| Uber | $400 | $2,000 | 400.00% |
| Didi Kuaidi | $30 | $450 | 1400.00% |
| Ola | $50 | $150 | 200.00% |
| GrabTaxi | $15 | $50 | 233.33% |
| BlaBlaCar | $30 | $72 | 140.00% |
| Company | Estimated Value (Price) | Revenue Share | Operating Margin | Failure Probability | Imputed Revenue(2026) | Imputed Gross Billing (2026) |
|---|---|---|---|---|---|---|
| Lyft | $2,500 | 15% | 25% | 10% | $2,800 | $18,665 |
| Uber | $51,000 | 15% | 25% | 0% | $51,418 | $342,787 |
| Didi Kuaidi | $15,000 | 15% | 20% | 0% | $20,044 | $133,629 |
| Ola | $2,500 | 15% | 20% | 15% | $3,927 | $26,183 |
| GrabTaxi | $1,500 | 10% | 20% | 15% | $2,392 | $23,923 |
| BlaBlaCar | $1,600 | 12% | 20% | 10% | $2,392 | $19,935 |
| Total | $74,100 | NA | NA | NA | $82,974 | $565,123 |
| Stage of disruption | The Taxi Cab Business |
|---|---|
| 1. Denial and Delusion | This is long in the past, but in the first year or two of Uber’s existence, there were many in the conventional car service and taxi cab businesses, who were convinced that not only was this a passing phase, but that no customer in his right mind would want to miss the comfort, convenience and safety of a yellow cab experience. (Irony alert!) |
| 2. Failure and False Hope | With each misstep by a ride sharing company (and Uber in particular), whether it be an employee with a loose tongue or a assault by an Uber driver, the hope that this misstep will put an end to the ride sharing business rises among taxi operators and regulators. However, only the most delusional among these hold on this hope. |
| 3. Imitation and Institutional Inertia | In the mistaken belief that all that separates the ride sharing companies from conventional car service is an app, taxi operators have turned to putting apps in the hands of drivers and customers. At the same time, any attempts to introduce flexibility into the existing car service business are fought by politicians, regulators and some of the operators who benefit from the current structure. |
| 4. Regulation, Rule Rigging and Legal Challenges | This seems to be the place where car service companies are making their stand, aided and abetted by regulators, courts and politics. By restricting or even banning ride sharing, they are slowing it’s growth but as I see it, the fight is on its way to being lost, since it is the customers who ultimately will determine the winner in this game, and they are voting with their dollars. |
| 5. Acceptance and Adjustment | It may be slow in coming, but a portion of the conventional car service business is adjusting to the new reality, sometimes because they realize that it is a fight that is unwinnable and sometimes because the financial hill is getting steeper to climb. This is especially true for cab operators who have borrowed much or most of the money that they used to buy medallions and are discovering that they cannot pay their debt. |
| Uber | Lyft | |
|---|---|---|
| Number of cities in US | 150 | 65 |
| Number of cities | >300 | 65 |
| Number of countries | 60 | 1 |
| Number of rides - 2014 | 140 | NA |
| Number of rides (in millions) - 2015E | NA | 90 |
| Number of rides (in millions) - 2016E | NA | 205 |
| Gross Billings (in millions $) - 2014 | $2,000 | $500 |
| Gross Billings (in millions $) - 2015E | $10,840 | $1,200 |
| Gross Billings (in millions $) - 2016 | $26,000 | $2,700 |
| Estimated Growth for 2015 | 442% | 140% |
| Estimated Growth for 2016 | 140% | 125% |
| Operating loss in 2014 (in millions $) | -$470 | -$50 |
| Lyft | Uber | |
|---|---|---|
| Potential Market | US-centric, ride-sharing company. | Global, logistics company |
| Growth Effect | Double ride-sharing market in US in next 10 years | Double logistics market globally in next 10 years |
| Market Share | Weak national networking benefits | Weak global networking benefits |
| Competitive Advantage | Semi-strong competitive advantages | Semi-strong competitive advantages |
| Expense Profile | Drivers as partial employee | Drivers as partial employees |
| Capital Intensity | Low capital intensity | Low capital intensity, with potential for shift to more capital intense model |
| Management Culture | Aggressive within ride sharing business, Milder with regulators and media. | Aggressive with all players (competitors, regulators, media) |
![]() |
| Spreadsheet with Lyft Valuation (September 2015) |
| Company | Last VC round investment amount (in US$ millions) | Date | Lead Investors | Imputed Pricing for the company (in US $ millions) |
|---|---|---|---|---|
| Lyft | $530.00 | 15-May | Rakuten, Didi Kuaidi, Carl Icahn | $2,500.00 |
| Uber | $1,000.00 | 15-Jul | Microsoft | $51,000.00 |
| Didi Kuaidi | $2,000.00 | 15-Jul | China Investment Fund | $15,000.00 |
| Ola | $310.00 | 15-Mar | DST Global | $2,300.00 |
| GrabTaxi | $200.00 | 15-Jul | Coatue Management & others | $1,500.00 |
| Company | Estimated Value (Price) | Gross Billing in $ millions (2015) | Revenues (2015)* | Operating Profit or Loss (2015) | Cities served (2015) | # rides | Potential Market (in $ millions) | # Drivers |
|---|---|---|---|---|---|---|---|---|
| Lyft | $2,500 | $1,200 | $300 | -$100 | 65 | 156 | $55,000 | 100000 |
| Uber | $51,000 | $10,840 | $2,000 | -$470 | 300 | 1460 | $205,000 | 800000 |
| Didi Kuaidi | $15,000 | $12,000 | $450 | -$1,400 | 137 | 2190 | $50,000 | 2600000 |
| Ola | $2,500 | $1,200 | $150 | NA | 85 | 100 | $13,000 | 250000 |
| GrabTaxi | $1,500 | $1,000 | $50 | NA | 26 | 300 | $6,000 | 75000 |
| BlaBlaCar | $1,600 | $600 | $72 | NA | 100 | NA | $20,000 | NA |
| Company | Value/Gross Billing | Value/Revenues | Value/City | Value/Ride | Value/Potential Market |
|---|---|---|---|---|---|
| Lyft | 2.08 | 8.33 | $38.46 | $16.03 | 0.0455 |
| Uber | 4.70 | 25.50 | $170.00 | $34.93 | 0.2488 |
| Didi Kuaidi | 1.25 | 33.33 | $109.49 | $6.85 | 0.3000 |
| Ola | 2.08 | 16.67 | $29.41 | $25.00 | 0.1923 |
| GrabTaxi | 1.50 | 30.00 | $57.69 | $5.00 | 0.2500 |
| BlaBlaCar | 2.67 | 22.22 | $16.00 | NA | 0.0800 |
| Average | 2.38 | 20.54 | 70.18 | $17.56 | 0.1861 |
| Median | 2.08 | 22.22 | 48.08 | $16.03 | 0.2205 |
| Aggregate | 2.76 | 22.98 | 103.93 | $17.24 | 0.2123 |
| Year | Revenues ($) | % Growth Rate |
|---|---|---|
| 2005 | 1,274,716.6 | |
| 2006 | 1,421,804.2 | 11.54% |
| 2007 | 1,854,576.4 | 30.44% |
| 2008 | 1,818,533.0 | -1.94% |
| 2009 | 1,572,890.1 | -13.51% |
| 2010 | 1,816,269.4 | 15.47% |
| 2011 | 1,962,630.4 | 8.06% |
| 2012 | 2,110,572.2 | 7.54% |
| 2013 | 2,158,603.0 | 2.28% |
| 2014 | 2,086,124.8 | -3.36% |
![]() |
| Source: S&P Capital IQ |
| Ferrari (my estimated value) | Auto Sector | Reason for difference | |
|---|---|---|---|
| EV/Sales | 2.10 | 0.94 | Ferrari's operating margin is 18.2% versus Industry average of 6.58%. |
| EV/Invested Capital | 1.97 | 1.02 | Ferrari earns a much higher return on capital (14.56%) than the sector (6.68%) |
| EV/EBITDA | 12.57 | 9.05 | Ferrari EBITDA/Invested capital is 15.68% versus Industry average of 14.45%. |
| PE | 22.87 | 10.00 | Ferrari has a debt ratio of 9.43% versus Industry average of 39.06%. |
| PBV | 2.56 | 1.29 | Ferrari has a slightly higher ROE and lower equity risk (because of less debt) |
| Pharmaceuticals | Allergan | Allergan Premium | |
|---|---|---|---|
| PE Ratio | 31.24 | NA | NA |
| Price/Book Equity | 4.11 | 4.37 | 6.33% |
| EV/EBIT | 20.12 | 53.15 | 164.17% |
| EV/EBITDA | 13.97 | 19.32 | 38.30% |
| EV/EBITDAR | 9.71 | 16.58 | 70.75% |
| EV/Sales | 4.71 | 7.85 | 66.67% |
![]() |
| Source: KPMG |
| Tax Model | Marginal tax rate (for cost of debt) | Effective tax rate (next 10 years) | Effective tax rate (in stable growth) | Trapped Cash |
|---|---|---|---|---|
| Patriot Games | 40% | 40% | 40% | Return immediately & pay taxes now. |
| Wait-it-out (Tax Limbo) | 40% | 23.45%, with taxes on deferred taxes paid in year 10. | 40% | Return in ten years & pay taxes then. |
| Go Irish (Invert) | 40% | 23.45% | 30.68% | No taxes due |
| Patriot Games | Wait-it-out | Go Irish | Effect of Inversion | ||
|---|---|---|---|---|---|
| R&D Expensed | Equity Value | $154,806.00 | $176,047.00 | $209,637.00 | $33,590.00 |
| Per share | $25.09 | $28.53 | $34.39 | $5.86 | |
| R&D capitalized | Equity Value | $121,074.00 | $135,156.00 | $162,309.00 | $27,153.00 |
| Per share | $19.62 | $21.91 | $26.60 | $4.69 |
![]() |
| Source: Wall Street Journal |
| Board Member | Designation | Age |
|---|---|---|
| Henry Kissinger | Former Secretary of State | 92 |
| Bill Perry | Former Secretary of Defense | 88 |
| George Schultz | Former Secretary of State | 94 |
| Bill Frist | Former Senate Majority Leader | 63 |
| Sam Nunn | Former Senator | 77 |
| Gary Roughead | Former Navy Admiral | 64 |
| James Mattis | Former Marine Corps General | 65 |
| Dick Kovocovich | Former CEO of Wells Fargo | 72 |
| Riley Bechtel | Former CEO of Bechtel | 63 |
| William Foege | Epidemologist | 79 |
| Elizabeth Holmes | Founder & CEO, Theranos | 31 |
| Sunny Balwani | President & COO, Theranos | NA |
| Year | R&D | Acquisitions | R&D/Sales | Acquisitions/Sales |
|---|---|---|---|---|
| 2005 | $69.42 | $- | 7.40% | 0.00% |
| 2006 | $77.80 | $- | 7.29% | 0.00% |
| 2007 | $100.61 | $- | 11.94% | 0.00% |
| 2008 | $69.81 | $101.90 | 9.22% | 13.46% |
| 2009 | $47.58 | $- | 5.80% | 0.00% |
| 2010 | $67.91 | $(308.98) | 5.75% | -26.16% |
| 2011 | $65.69 | $2,464.10 | 2.71% | 101.51% |
| 2012 | $79.10 | $3,485.30 | 2.27% | 100.14% |
| 2013 | $156.80 | $5,253.50 | 2.72% | 91.12% |
| 2014 | $246.00 | $1,102.60 | 2.98% | 13.35% |
| LTM | $297.60 | $14,123.20 | 2.98% | 141.46% |
![]() |
| Source: Valeant Statement of Cash Flows |

![]() |
| Source: Valiant Financial Statements |
![]() |
| Spreadsheet with valuation |
![]() |
| Source: Classification by S&P Capital IQ |
| Company Name | Industry Classifications | Revenues in 2014 |
|---|---|---|
| Johnson & Johnson (NYSE:JNJ) | Pharmaceuticals (Primary) | $74,331.00 |
| Pfizer Inc. (NYSE:PFE) | Pharmaceuticals (Primary) | $49,605.00 |
| Merck & Co. Inc. (NYSE:MRK) | Pharmaceuticals (Primary) | $42,237.00 |
| Gilead Sciences Inc. (NasdaqGS:GILD) | Biotechnology (Primary) | $24,890.00 |
| Amgen Inc. (NasdaqGS:AMGN) | Biotechnology (Primary) | $20,063.00 |
| AbbVie Inc. (NYSE:ABBV) | Biotechnology (Primary) | $19,960.00 |
| Eli Lilly and Company (NYSE:LLY) | Pharmaceuticals (Primary) | $19,615.60 |
| Bristol-Myers Squibb Company (NYSE:BMY) | Pharmaceuticals (Primary) | $15,879.00 |
| Allergan plc (NYSE:AGN) | Pharmaceuticals (Primary) | $13,062.30 |
| Biogen Inc. (NasdaqGS:BIIB) | Biotechnology (Primary) | $9,700.30 |
![]() |
| Ratios based on aggregated values of Sales, EBIT and R&D |
| Pharma | Biotech | |||||
|---|---|---|---|---|---|---|
| Year | R&D/Sales | Revenue Growth | Growth to R&D | R&D/Sales | Revenue Growth | Growth to R&D |
| 1991 | 10.17% | 49.30% | 4.85 | 26.22% | 1444.23% | 55.08 |
| 1992 | 10.64% | 6.40% | 0.60 | 23.80% | 82.91% | 3.48 |
| 1993 | 10.97% | 3.58% | 0.33 | 26.87% | 48.36% | 1.80 |
| 1994 | 10.30% | 15.85% | 1.54 | 33.50% | 27.66% | 0.83 |
| 1995 | 10.37% | 17.32% | 1.67 | 31.72% | 42.99% | 1.36 |
| 1996 | 10.44% | 11.38% | 1.09 | 34.18% | 18.61% | 0.54 |
| 1997 | 10.61% | 13.20% | 1.24 | 37.80% | 14.23% | 0.38 |
| 1998 | 11.15% | 19.92% | 1.79 | 33.44% | 21.49% | 0.64 |
| 1999 | 11.08% | 15.66% | 1.41 | 37.39% | 0.32% | 0.01 |
| 2000 | 11.41% | 8.15% | 0.71 | 38.46% | 4.79% | 0.12 |
| 2001 | 13.74% | -8.17% | -0.59 | 40.23% | 11.96% | 0.30 |
| 2002 | 13.95% | 4.80% | 0.34 | 39.19% | 11.34% | 0.29 |
| 2003 | 14.72% | 16.26% | 1.10 | 33.86% | 44.21% | 1.31 |
| 2004 | 14.79% | 8.17% | 0.55 | 33.43% | 35.49% | 1.06 |
| 2005 | 15.40% | 1.49% | 0.10 | 31.43% | 19.26% | 0.61 |
| 2006 | 16.08% | 2.86% | 0.18 | 33.49% | 19.43% | 0.58 |
| 2007 | 16.21% | 8.57% | 0.53 | 33.76% | 14.29% | 0.42 |
| 2008 | 15.94% | 6.21% | 0.39 | 30.35% | 15.20% | 0.50 |
| 2009 | 15.58% | -4.87% | -0.31 | 22.18% | 54.79% | 2.47 |
| 2010 | 15.17% | 19.82% | 1.31 | 21.25% | 11.42% | 0.54 |
| 2011 | 14.30% | 3.77% | 0.26 | 19.19% | 22.76% | 1.19 |
| 2012 | 14.48% | -2.99% | -0.21 | 19.53% | 10.52% | 0.54 |
| 2013 | 14.28% | 2.34% | 0.16 | 20.80% | 10.50% | 0.51 |
| 2014 | 14.36% | 1.67% | 0.12 | 19.04% | 29.59% | 1.55 |
| 1991-95 | 10.49% | 18.49% | 1.80 | 28.42% | 329.23% | 12.51 |
| 1996-00 | 10.94% | 13.66% | 1.25 | 36.26% | 11.89% | 0.34 |
| 2001-05 | 14.52% | 4.51% | 0.30 | 35.63% | 24.45% | 0.71 |
| 2006-10 | 15.80% | 6.52% | 0.42 | 28.21% | 23.02% | 0.90 |
| 2011-14 | 14.36% | 1.20% | 0.08 | 19.64% | 18.34% | 0.95 |
![]() |
| Aggregate Market Capitalization at end of each calendar year |
![]() |
| Download Spreadsheet |
![]() |
| Old companies = Age greater than 35 years (since founding) |
![]() |
| PEG = Trailing PE/ Expected Growth rate in EPS in next 5 years |
![]() |
| Valuation in September 2014 |
| Market Cap | Yahoo's share | Value of holding | |
|---|---|---|---|
| Yahoo! Japan (12/4/15) | $23,900 | 35.00% | $8,365 |
| Alibaba (12/4/15) | $207,500 | 15.40% | $31,955 |
| $40,320 | |||
| + Yahoo Cash (Sept 2015) | $5,882 | ||
| - Yahoo Debt (Sept 2015) | $2,161 | ||
| + Yahoo Operating Assets | $- | ||
| Value of Yahoo Equity | $44,041 | ||
| Yahoo Market Cap (12/4/15) | $32,390 | ||
| Discount on holdings | 28.90% |
![]() |
| Source: Damodaran Online |
| Pluses of Debt | Minuses of Debt |
|---|---|
| 1. Tax Benefit: Interest expenses on debt are tax deductible but cash flows to equity are generally not. The implication is that the higher the marginal tax rate, the greater the benefits of debt. | 1. Expected Bankruptcy Cost: The expected cost of going bankrupt is a product of the probability of going bankrupt and the cost of going bankrupt. The latter includes both direct and indirect costs. The probability of going bankrupt will be higher in businesses with more volatile earnings and the cost of bankruptcy will also vary across businesses. |
| 2. Added Discipline: Borrowing money may force managers to think about the consequences of the investment decisions a little more carefully and reduce bad investments. The greater the separation between managers and stockholders, the greater the benefits of using debt. | 2. Agency Costs: Actions that benefit equity investors may hurt lenders. The greater the potential for this conflict of interest, the greater the cost borne by the borrower (as higher interest rates or more covenants). Businesses where lenders can monitor/control how their money is being used can borrow more than businesses where this is difficult to do. |
![]() |
| Damodaran Online |
![]() |
| Damodaran Online, January 2016 |
![]() |
| Damodaran Online, January 2016 |
![]() |
| Damodaran Online, Data Update of 41,889 companies in January 2016 |
![]() |
| Source: Damodaran Online |
![]() |
| Source: Damodaran Online |
![]() |
| My paper on equity risk premiums |
![]() |
| Source: Federal Reserve in St. Louis (Download spreadsheet) |
![]() |
| Source: Federal Reserve in St. Louis (FRED) (Download spreadsheet) |
![]() |
| Download spreadsheet |
![]() |
| Source: Merrill Lynch Indices (from FRED) (Download spreadsheet) |
![]() |
| Spreadsheet with risk free rates |
![]() |
| Spreadsheet with valuation |
![]() |
| Spreadsheet with valuation |
One simple way to measure how much these companies have to come to dominate their playing fields is to compare them with traditional heavyweights in their businesses, Walmart, in the case of Amazon, and Time Warner, in the case of Netflix.![]() |
| Amazon Valuation Spreadsheet |
![]() |
| Download spreadsheet |
![]() |
| Country Performance Spreadsheet |
![]() |
| Industry Spreadsheet |
![]() |
| February 2016 |
![]() |
| Ten-year Government Bond Rates - March 9, 2016 |
![]() |
| Source: S&P Capital IQ |
![]() |
| Download spreadsheet |
![]() |
| Download spreadsheet |
![]() |
| Download spreadsheet |
![]() |
| Download spreadsheet |
![]() |
| Link to heat map |
![]() |
| Link to heat map |
![]() |
| Link to heat map |
![]() |
| Link to heat map |
![]() |
| Download spreadsheet |
![]() |
| Download spreadsheet |
![]() |
| Download spreadsheet |
![]() |
| Download spreadsheet |
![]() |
| Historical data on Shiller CAPE |
![]() |
| Download market timing spreadsheet |
![]() |
| Shiller CAPE data (from his site) |
![]() |
| Download spreadsheet with PE ratios |
![]() |
| Download spreadsheet and change parameters |
![]() |
| Download T Bond Rate PE data |
| Year | Earnings | Dividends | Dividends + Buybacks | Dividend Payout | Cash Payout |
|---|---|---|---|---|---|
| 2001 | 38.85 | 15.74 | 30.08 | 40.52% | 77.43% |
| 2002 | 46.04 | 16.08 | 29.83 | 34.93% | 64.78% |
| 2003 | 54.69 | 17.88 | 31.58 | 32.69% | 57.74% |
| 2004 | 67.68 | 19.407 | 40.60 | 28.67% | 59.99% |
| 2005 | 76.45 | 22.38 | 61.17 | 29.27% | 80.01% |
| 2006 | 87.72 | 25.05 | 73.16 | 28.56% | 83.40% |
| 2007 | 82.54 | 27.73 | 95.36 | 33.60% | 115.53% |
| 2008 | 49.51 | 28.05 | 67.52 | 56.66% | 136.37% |
| 2009 | 56.86 | 22.31 | 37.43 | 39.24% | 65.82% |
| 2010 | 83.77 | 23.12 | 55.53 | 27.60% | 66.28% |
| 2011 | 96.44 | 26.02 | 71.28 | 26.98% | 73.91% |
| 2012 | 96.82 | 30.44 | 75.90 | 31.44% | 78.39% |
| 2013 | 107.3 | 36.28 | 88.13 | 33.81% | 82.13% |
| 2014 | 113.01 | 39.44 | 101.98 | 34.90% | 90.24% |
| 2015 | 100.48 | 43.16 | 106.10 | 42.95% | 105.59% |
| 2016 (LTM) | 98.61 | 43.88 | 110.62 | 44.50% | 112.18% |


| Year | Number of US ride sharers (in millions) | % of US adult population |
|---|---|---|
2014
|
8.20
|
3.40%
|
2015
|
12.40
|
5.00%
|
2016
|
15.00
|
6.00%
|
2017
|
17.00
|
6.70%
|
2018
|
18.20
|
7.10%
|
2019
|
19.40
|
7.50%
|
2020
|
20.40
|
7.80%
|
Ride Sharing Company
|
Amount Raised in last 12 months (in millions)
|
Investor
|
Company Priced at (in millions)
|
|---|---|---|---|
Didi
|
$7,300.00
|
Apple, Alibaba, Softbank & Others
|
$28,000
|
Uber
|
$3,500.00
|
Saudi Arabian Sovereign Fund
|
$62,500
|
Lyft
|
$500.00
|
GM
|
$5,500
|
Ola
|
$500.00
|
Didi & Existing Investors
|
$5,000
|
Grabtaxi
|
$350.00
|
Didi & CIC
|
$1,800
|
Gett
|
$300.00
|
Volkswagen
|
$2,000
|
Via
|
$100.00
|
VC
|
NA
|
Scoop
|
$5.10
|
BMW
|
NA
|
![]() |
| Download spreadsheet |
Question
|
Green
|
Red
|
Who is paying you to do this valuation and how much? Is
any of the payment contingent on the deal happening? (FINRA rule 2290 mandates disclosure on these)
|
Payment
reflects reasonable payment for valuation services rendered and none of the
payment is contingent on outcome
|
Payment is disproportionately
large, relative to valuation services provided, and/or a large portion
of it is contingent on deal occurring.
|
Where are you getting the cash flows that you are using in
this valuation?
|
Appraiser estimates revenues, operating margins and cash flows, with
input from management on investment and growth plans.
|
Cash flows supplied by
management/ board of company.
|
Are the cash flows internally consistent?
|
1.
Currency: Cash flows & discount rate are in same
currency, with same inflation assumptions.
2.
Claim holders: Cash flows are to equity (firm) and discount
rate is cost of equity (capital).
3.
Operations: Reinvestment, growth and risk assumptions
matched up.
|
No internal consistency tests run and/or DCF littered with inconsistencies, in
currency and/or assumptions.
- High growth + Low reinvestment
- Low growth + High reinvestment
- High inflation in cash flows + Low inflation in discount
rate
|
What discount rate are you using in your valuation?
|
A cost of equity (capital)
that starts with a sector average and is within the bounds of what
is reasonable for the sector and the market.
|
A cost of equity (capital) that
falls outside the normal range for a sector, with no credible
explanation for difference.
|
How are you applying closure in your valuation?
|
A terminal value that is
estimated with a perpetual growth rate < growth rate of the economy
and reinvestment & risk to match.
|
A terminal value based upon a perpetual
growth rate > economy or a multiple (of earnings or revenues)
that is not consistent with a healthy, mature firm.
|
What valuation garnishes have you applied?
|
None.
|
A large dose of premiums
(control, synergy etc.) pushing up value or a mess of discounts
(illiquidity, small size etc.) pushing down value.
|
What does your final judgment in value look like?
|
A distribution of values,
with a base case value and distributional statistics.
|
A range of values so large
that any price can be justified.
|
![]() |
| Tesla Prospectus |
![]() |
| Tesla Prospectus |

![]() |
| Global Bank Data |

| Year | Common Equity | ROE | Expected Net Income |
|---|---|---|---|
| Base | $64,609 | -13.70% | $(8,851) |
| 1 | $71,161 | -7.18% | $(5,111) |
| 2 | $72,754 | -2.84% | $(2,065) |
| 3 | $74,372 | 0.06% | $43 |
| 4 | $76,017 | 1.99% | $1,512 |
| 5 | $77,688 | 5.85% | $4,545 |
| 6 | $79,386 | 6.57% | $5,214 |
| 7 | $81,111 | 7.29% | $5,910 |
| 8 | $82,864 | 8.00% | $6,632 |
| 9 | $84,644 | 8.72% | $7,383 |
| 10 | $86,453 | 9.44% | $8,161 |
| Terminal Year | $87,326 | 9.44% | $8,244 |
![]() |
| Global Bank Data |
| Year | Net Income | Risk-Adjusted Assets | Tier 1 Capital/ Risk Adjusted Assets | Tier 1 Capital | Change in Tier 1 Capital | FCFE = Net Income - Change in Tier 1 |
|---|---|---|---|---|---|---|
| Base | $(8,851) | $445,570 | 12.41% | $55,282 | ||
| 1 | $(5,111) | $450,026 | 13.74% | $61,834 | $6,552 | $(11,663) |
| 2 | $(2,065) | $454,526 | 13.95% | $63,427 | $1,593 | $(3,658) |
| 3 | $43 | $459,071 | 14.17% | $65,045 | $1,619 | $(1,576) |
| 4 | $1,512 | $463,662 | 14.38% | $66,690 | $1,645 | $(133) |
| 5 | $4,545 | $468,299 | 14.60% | $68,361 | $1,671 | $2,874 |
| 6 | $5,214 | $472,982 | 14.81% | $70,059 | $1,698 | $3,516 |
| 7 | $5,910 | $477,711 | 15.03% | $71,784 | $1,725 | $4,185 |
| 8 | $6,632 | $482,488 | 15.24% | $73,537 | $1,753 | $4,880 |
| 9 | $7,383 | $487,313 | 15.46% | $75,317 | $1,780 | $5,602 |
| 10 | $8,161 | $492,186 | 15.67% | $77,126 | $1,809 | $6,352 |
| Terminal Year | $8,244 | $497,108 | 15.67% | $77,897 | $771 | $7,472 |

| Year | FCFE | Terminal Value | Cost of equity | Cumulative Cost of Equity | PV |
|---|---|---|---|---|---|
| 1 | $(11,663) | 10.20% | 1.1020 | $(10,583.40) | |
| 2 | $(3,658) | 10.20% | 1.2144 | $(3,012.36) | |
| 3 | $(1,576) | 10.20% | 1.3383 | $(1,177.54) | |
| 4 | $(133) | 10.20% | 1.4748 | $(90.34) | |
| 5 | $2,874 | 10.20% | 1.6252 | $1,768.16 | |
| 6 | $3,516 | 10.05% | 1.7885 | $1,965.99 | |
| 7 | $4,185 | 9.90% | 1.9655 | $2,129.10 | |
| 8 | $4,880 | 9.74% | 2.1570 | $2,262.34 | |
| 9 | $5,602 | 9.59% | 2.3639 | $2,369.91 | |
| 10 | $6,352 | $87,317 | 9.44% | 2.5871 | $36,206.88 |
| Total value of equity | $31,838.74 | ||||
| Value per share = | $22.97 |
| Unadjusted Equity Value = | $33.63 |
|---|---|
| - Dilution Effect from new equity issues | $(10.66) |
| - Expected cost of equity wipeout | $(2.30) |
| Value of equity per share today = | $20.67 |
![]() |
| Download Spreadsheet |

![]() |
| Source: Cambridge Associates |
| 1-Year Horizon | 5-Year Horizon | 10-year Horizon | |
|---|---|---|---|
1928-2015
|
67.09%
|
67.57%
|
70.09%
|
1966-2015
|
72.43%
|
73.42%
|
75.10%
|
1996-2015
|
81.51%
|
84.11%
|
85.28%
|
| Excess Growth Rate (next 5 years) | ROE = COE -2% | ROE = COE | ROE = COE +2% |
|---|---|---|---|
0%
|
75.14%
|
75.14%
|
75.14%
|
2%
|
86.30%
|
82.53%
|
80.86%
|
4%
|
100.00%
|
90.76%
|
86.75%
|
6%
|
117.24%
|
100.00%
|
93.15%
|
8%
|
139.59%
|
110.44%
|
100.00%
|
10%
|
169.71%
|
122.33%
|
107.35%
|
| Excess Growth Rate (next 5 years) | ROE = COE -2% | ROE = COE | ROE = COE +2% |
|---|---|---|---|
0%
|
$1,227.00
|
$1,380.00
|
$1,472.00
|
2%
|
$1,326.00
|
$1,491.00
|
$1,591.00
|
4%
|
$1,431.00
|
$1,610.00
|
$1,717.00
|
6%
|
$1,542.00
|
$1,734.00
|
$1,850.00
|
8%
|
$1,659.00
|
$1,864.00
|
$1,991.00
|
10%
|
$1,783.00
|
$2,006.00
|
$2,140.00
|
| Region | Number of firms | % with negative revenue growth in 2015 | % with negative CAGR in revenues: 2011-2015 | % with negative CAGR in revenues: 2006-2015 |
|---|---|---|---|---|
Australia, NZ and Canada
|
5014
|
41.44%
|
36.73%
|
28.20%
|
Developed Europe
|
7082
|
33.42%
|
30.03%
|
24.25%
|
Emerging Markets
|
21196
|
43.06%
|
29.35%
|
21.50%
|
Japan
|
3698
|
33.41%
|
20.76%
|
31.80%
|
United States
|
9823
|
39.69%
|
26.76%
|
28.10%
|
Grand Total
|
46814
|
39.86%
|
28.64%
|
24.69%
|
| Industry Grouping | Number of firms | % Negative in 2015 | % with Negative CAGR from 2011-2015 | % with Negative CAGR from 20106-2015 |
|---|---|---|---|---|
Publshing & Newspapers
|
346
|
53.77%
|
48.44%
|
45.69%
|
Computers/Peripherals
|
327
|
43.30%
|
42.12%
|
45.65%
|
Electronics (Consumer & Office)
|
152
|
43.70%
|
47.11%
|
44.44%
|
Homebuilding
|
164
|
31.51%
|
22.69%
|
35.87%
|
Oil/Gas (Production and Exploration)
|
959
|
79.22%
|
43.75%
|
35.40%
|
Food Wholesalers
|
126
|
37.00%
|
30.59%
|
33.33%
|
Office Equipment & Services
|
160
|
40.58%
|
32.54%
|
33.33%
|
Real Estate (General/Diversified)
|
418
|
41.33%
|
32.72%
|
32.52%
|
Telecom. Equipment
|
473
|
43.00%
|
37.36%
|
32.43%
|
Steel
|
757
|
73.23%
|
50.65%
|
32.08%
|
| Period | 10-Year T.Bond Rate | Inflation Rate | Real GDP Growth | Nominal GDP growth rate | Nominal GDP - T.Bond Rate |
|---|---|---|---|---|---|
| 1954-2015 |
5.93%
|
3.61%
|
3.06%
|
6.67%
|
0.74%
|
| 1954-1980 |
5.83%
|
4.49%
|
3.50%
|
7.98%
|
2.15%
|
1981-2008
|
6.88%
|
3.26%
|
3.04%
|
6.30%
|
-0.58%
|
![]() |
| Source: SPIVA |
![]() |
| Source: Morningstar |
![]() |
| Source: S&P (SPIVA) |
![]() |
| Link to live map |
![]() |
| Spreadsheet with country data |
![]() |
| Spreadsheet with sector data |
![]() |
| Link to live map |
![]() |
| Link to live map |
| Sub Group | Effective Tax Rate | Sub Group | Effective Tax Rate |
|---|---|---|---|
| Africa and Middle East | 15.48% | India | 27.65% |
| Australia & NZ | 26.76% | Japan | 31.07% |
| Canada | 19.68% | Latin America & Caribbean | 22.91% |
| China | 21.72% | Small Asia | 21.59% |
| EU & Environs | 23.03% | UK | 22.26% |
| Eastern Europe & Russia | 19.88% | United States | 26.22% |
![]() |
| Link to live version of map |
![]() |
| Link to live version of the map |
![]() |
| Link to live map |
![]() |
| Link to live map |

![]() |
| Sources: Multiple |
![]() |
| Link to my book |
| Snap | |||||
|---|---|---|---|---|---|
| IPO date | 19-Aug-04 | 19-May-11 | 18-May-12 | 7-Nov-13 | NA |
| Revenues | $1,466 | $161 | $3,711 | $449 | $405 |
| Operating Income | $326 | $13 | $1,756 | $(93) | $(521) |
| Net Income | $143 | $2 | $668 | $(99) | $(515) |
| Number of Users | NA | 80.6 | 845 | 218 | 161 |
| User minutes per day (January 2017) | 50 (Includes YouTube) | NA | 50 | 2 | 25 |
| Market Capitalization on offering date | $23,000 | $9,000 | $81,000 | $18,000 | ? |
| Link to Prospectus (from IPO date) | Link | Link | Link | Link | Link |
![]() |
| Source: The Economist |
![]() |
| Download spreadsheet |
![]() |
| Snap Simulation Details |
![]() |
| Download spreadsheet with valuation |
| Cash Return Statistic | Definition | What it measures |
|---|---|---|
| Dividend Yield | Dividends/Market Cap | Portion of equity return that comes from dividends. |
| Dividend Payout | Dividends/Net Income (if net income is positive, NA if negative) | Proportion of earnings held back by the company for reinvestment or as cash balance. |
| Cash Return/FCFE | (Dividends + Buybacks)/FCFE (if FCFE is positive, NA if negative) | Percentage of potential dividends returned to stockholders. Remaining goes into cash balance. |
![]() |
| Link to live map |
![]() |
| Link to full country spreadsheet |
![]() |
| Link to live map |
| 2016 10K | 2015 10K | % Change | |
|---|---|---|---|
| Revenues | $9,674.00 | $10,442.00 | -7.35% |
| Operating income or EBIT | $3,105.46 | $4,550.38 | -31.75% |
| Interest expense | $1,836.00 | $1,563.00 | 17.47% |
| Book value of equity | $3,258.00 | $6,029.00 | -45.96% |
| Book value of debt | $29,852.00 | $31,104.00 | -4.03% |
![]() |
| Blog Post on Excess Returns |
| Multiple | Cheap Company | Expensive Company |
|---|---|---|
| PE | Low PE, High growth, Low Equity Risk, High Payout | High PE, Low growth, High Equity Risk, Low Payout |
| PEG | Low PEG, Low Growth, Low Equity Risk, High Payout | High PEG, High Growth, High Equity Risk, Low Payout |
| PBV | Low PBV, High Growth, Low Equity Risk, High ROE | High PBV, Low Growth, High Equity Risk, Low ROE |
| EV/Invested Capital | Low EV/IC, High Growth, Low Operating Risk, High ROIC | High EV/IC, Low Growth, High Operating Risk, Low ROIC |
| EV/Sales | Low EV/Sales, High Growth, Low Operating Risk, High Operating Margin | High EV/Sales, Low Growth, High Operating Risk, High Operating Margin |
| EV/EBITDA | Low EV/EBITDA, High Growth, Low Operating Risk, Low Tax Rate | High EV/EBITDA, Low Growth, High Operating Risk, High Tax Rate |
| Company's Business | Company's Managers | Company Pricing | Investment Decision |
|---|---|---|---|
| Good (Strong competitive advantages, Growing market) | Good (Optimize investment, financing, dividend decisions) | Good (Price < Value) | Emphatic Buy |
| Good (Strong competitive advantages, Growing market) | Bad (Sub-optimal investment, financing, dividend decisions) | Good (Price < Value) | Buy & hope for management change |
| Bad (No competitive advantages, Stagnant or shrinking market) | Good (Optimize investment, financing, dividend decisions) | Good (Price < Value) | Buy & hope that management does not change |
| Bad (No competitive advantages, Stagnant or shrinking market) | Bad (Sub-optimal investment, financing, dividend decisions) | Good (Price < Value) | Buy, hope for management change & pray company survives |
| Good (Strong competitive advantages, Growing market) | Good (Optimize investment, financing, dividend decisions) | Bad (Price > Value) | Admire, but don't buy |
| Good (Strong competitive advantages, Growing market) | Bad (Sub-optimal investment, financing, dividend decisions) | Bad (Price > Value) | Wait for management change |
| Bad (No competitive advantages, Stagnant or shrinking market) | Good (Optimize investment, financing, dividend decisions) | Bad (Price > Value) | Sell |
| Bad (No competitive advantages, Stagnant or shrinking market) | Bad (Sub-optimal investment, financing, dividend decisions) | Bad (Price > Value) | Emphatic Sell |
![]() |
| Download spreadsheet |
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| Download spreadsheet |
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| Download spreadsheet |
| Company | Most Recent Pricing (in $ millions) | # Users (in millions) | Price/User |
|---|---|---|---|
| Uber | $69,000 | 40.00 | $1,725.00 |
| Lyft | $7,500 | 5.00 | $1,500.00 |
| Didi Chuxing | $50,000 | 250.00 | $200.00 |
| Ola | $3,000 | 10.00 | $300.00 |
| GrabTaxi | $4,200 | 3.80 | $1,105.26 |
![]() |
| Download spreadsheet |
![]() |
| VIX: S&P 500, Euro VIX: Euro Stoxx 50 |
![]() |
| Source: Investment Company Institute |
![]() |
| Download spreadsheet |
![]() |
| Download historical data |
![]() |
| Source: S&P |
![]() |
| Source: Fitch Ratings |
![]() |
| Link for live map |
![]() |
| Link for live map |
![]() |
| Link to live map |
![]() |
| Link to live map |
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| Link to live map |
![]() |
| Link for live map |
![]() |
| Link for live map |
![]() |
| Excel Add On: Crystal Ball (Oracle), Simulation Output |
| % of Operating Expenses spent on acquiring new users | Value of Existing Users | Value of New Users | Uber User Value | % of Value from Existing users |
|---|---|---|---|---|
0%
|
$6,167
|
$18,147
|
$24,314
|
25.36%
|
20%
|
$10,619
|
$19,035
|
$29,654
|
35.81%
|
40%
|
$15,071
|
$19,923
|
$34,994
|
43.07%
|
60%
|
$19,523
|
$20,811
|
$40,334
|
48.40%
|
80%
|
$23,974
|
$21,699
|
$45,673
|
52.49%
|
100%
|
$28,426
|
$22,587
|
$51,013
|
55.72%
|
| % of current expenses that are fixed | Value of Existing Users | Value of New Users | Uber User Value | % of Value from Existing users |
|---|---|---|---|---|
0%
|
$14,733
|
$15,250
|
$29,983
|
49.14%
|
20%
|
$16,412
|
$20,191
|
$36,603
|
44.84%
|
40%
|
$17,834
|
$24,373
|
$42,207
|
42.25%
|
60%
|
$19,040
|
$27,924
|
$46,964
|
40.54%
|
80%
|
$20,068
|
$30,949
|
$51,017
|
39.34%
|
100%
|
$20,947
|
$33,536
|
$54,483
|
38.45%
|
| Subscription | Transaction | Advertising | |
|---|---|---|---|
| User Stickiness (User life & Renewal Probability) | High (High life & renewal probability) | Intermediate (Intermediate life & renewal probability) | Low (Low life & renewal probability) |
| Revenue per User Predictability (Discount rate) | High (Low Discount Rate) | Low Predictability (High Discount Rate) | Intermediate (Average Discount Rate) |
| Revenue per User Growth (Annual Growth Rate) | Low (Low growth rate in revenues/user) | Low (High growth rate in revenues/user) | Intermediate (Intermediate growth rate in revenues/user) |
| Growth rate in users (CAGR in # Users) | Low (Low CAGR in # users) | Intermediate (Intermediate CAGR in # users) | High (High CAGR in # users) |
| Cost of adding new users (Cost/New User) | High (High Cost/New User) | Intermediate (Middling Cost/New User) | Low (Low Cost/New User) |
![]() |
| Largest Auto Companies (Market Capitalization) on August 9, 2017 |
![]() |
| Download spreadsheet |
The Pricing Game
|
The Value Game
|
|
Underlying philosophy
|
The price is the only real number that you can act on. No one knows what the value of an asset is and estimating it is of little use.
|
Every asset has a fair or true value. You can estimate that value, albeit with error, and price has to converge on value (eventually).
|
To play the game
|
You try to guess which direction the price will move in the next period(s) and trade ahead of the movement. To win the game, you have to be right more often than wrong about direction and to exit before the winds shift.
|
You try to estimate the value of an asset, and if it is under(over) value, you buy (sell) the asset. To win the game, you have to be right about value (for the most part) and the market price has to move to that value
|
Key drivers
|
Price is determined by demand & supply, which in turn are affected by mood and momentum.
|
Value is determined by cash flows, growth and risk.
|
Information effect
|
Incremental information (news, stories, rumors) that shifts the mood will move the price, even if it has no real consequences for long term value.
|
Only information that alter cash flows, growth and risk in a material way can affect value.
|
| Tools of the game | (1) Technical indicators, (2) Price Charts (3) Investor Psychology | (1) Ratio analysis, (2) DCF Valuation (3) Accounting Research |
Time horizon
|
Can be very short term (minutes) to mildly short term (weeks, months).
|
Long term
|
Key skill
|
Be able to gauge market mood/momentum shifts earlier than the rest of the market.
|
Be able to “value” assets, given uncertainty.
|
Key personality traits
|
(1) Market amnesia (2) Quick Acting (3) Gambling Instincts
|
(1) Faith in “value” (2) Faith in markets (3) Patience (4) Immunity from peer pressure
|
Biggest Danger(s)
|
Momentum shifts can occur quickly, wiping out months of profits in a few hours.
|
The price may not converge on value, even if your value is “right”.
|
Added bonus
|
Capacity to move prices (with lots of money and lots of followers).
|
Can provide the catalyst that can move price to value.
|
Most Delusional Player
|
A trader who thinks he is trading based on value.
|
A value investor who thinks he can reason with markets.
|
![]() |
| Download spreadsheet |
![]() |
| Download spreadsheet |
| Category | Value/Cost today | Details |
|---|---|---|
| Value of Existing Members | $41,334.69 | Value of 85 million members @$486/each |
| Value of New Members | $52,792.78 | Value of new members added |
| - PV of Corporate Expenses | $32,845.63 | Value of additional media/tecnology costs |
| Value of Prime Membership | $61,281.83 | Overall value of Amazon Prime |
![]() |
| Disney Capital Structure Spreadsheet |
| Sub Group | Debt/Capital (Book) | Debt/Capital (Market) | Net Debt/ Capital (Book) | Net Debt/ Capital (Market) | Debt/EBITDA |
|---|---|---|---|---|---|
| Africa and Middle East | 45.23% | 34.00% | 30.27% | 21.31% | 5.99 |
| Australia & NZ | 61.66% | 43.48% | 57.82% | 39.60% | 8.57 |
| Canada | 55.35% | 42.42% | 52.46% | 39.60% | 7.16 |
| China | 51.63% | 39.34% | 41.83% | 30.40% | 8.52 |
| EU & Environs | 60.75% | 47.17% | 53.68% | 40.07% | 7.78 |
| Eastern Europe & Russia | 31.02% | 38.05% | 21.35% | 27.05% | 2.47 |
| India | 54.89% | 20.85% | 50.58% | 18.15% | 3.92 |
| Japan | 56.16% | 49.11% | 27.64% | 22.35% | 7.61 |
| Latin America & Caribbean | 51.67% | 40.01% | 46.23% | 34.90% | 5.74 |
| Small Asia | 44.04% | 34.76% | 36.01% | 27.59% | 4.54 |
| UK | 63.74% | 46.39% | 53.68% | 36.33% | 7.94 |
| United States | 64.06% | 37.11% | 60.86% | 33.99% | 7.09 |
![]() |
| Download full sector spreadsheet |
| Sub Group | Number of firms | Return on Capital | Cost of Capital | ROIC - Cost of Capital | % with +ve Excess Returns |
|---|---|---|---|---|---|
| Africa and Middle East | 2,277 | 5.88% | 8.76% | -2.88% | 34.55% |
| Australia & NZ | 1,777 | 4.71% | 7.97% | -3.26% | 31.88% |
| Canada | 2,850 | 5.69% | 8.39% | -2.70% | 19.07% |
| China | 5,552 | 5.11% | 8.13% | -3.02% | 45.57% |
| EU & Environs | 5,399 | 5.50% | 7.74% | -2.24% | 43.80% |
| Eastern Europe & Russia | 558 | 9.63% | 9.03% | 0.60% | 41.67% |
| India | 3,511 | 10.33% | 8.96% | 1.38% | 40.24% |
| Japan | 3,755 | 5.63% | 7.74% | -2.11% | 45.06% |
| Latin America & Caribbean | 880 | 6.68% | 8.80% | -2.12% | 43.63% |
| Small Asia (wo China, India & Japan) | 8,630 | 7.21% | 9.33% | -2.12% | 32.60% |
| UK | 1,412 | 5.53% | 7.78% | -2.24% | 47.62% |
| United States | 7,247 | 6.75% | 7.50% | -0.75% | 36.41% |
| Industry Name | ROC | Cost of Capital | (ROC - WACC) |
|---|---|---|---|
Electronics (Consumer & Office)
|
-5.54%
|
7.67%
|
-13.21%
|
Oil/Gas (Production and Exploration)
|
0.09%
|
7.76%
|
-7.67%
|
Oil/Gas (Integrated)
|
2.15%
|
8.45%
|
-6.30%
|
Green & Renewable Energy
|
1.94%
|
5.77%
|
-3.83%
|
Shipbuilding & Marine
|
4.88%
|
8.26%
|
-3.38%
|
Real Estate (Development)
|
2.27%
|
5.21%
|
-2.93%
|
Insurance (General)
|
2.82%
|
5.38%
|
-2.55%
|
R.E.I.T.
|
3.08%
|
4.43%
|
-1.35%
|
Real Estate (General/Diversified)
|
4.32%
|
5.58%
|
-1.26%
|
Auto & Truck
|
3.97%
|
5.06%
|
-1.09%
|
Oilfield Svcs/Equip.
|
6.42%
|
7.44%
|
-1.02%
|
Telecom (Wireless)
|
5.43%
|
5.72%
|
-0.29%
|
| Market Cap Class | Number of firms | Return on Capital | Cost of Capital | ROIC - Cost of Capital | % with +ve Excess Returns |
|---|---|---|---|---|---|
| Smallest | 4,384 | -8.37% | 8.38% | -16.75% | 9.97% |
| 2nd decile | 4,366 | -9.71% | 8.71% | -18.42% | 14.13% |
| 3rd decile | 4,388 | -3.93% | 8.53% | -12.46% | 20.58% |
| 4th decile | 4,399 | -0.34% | 8.38% | -8.72% | 27.66% |
| 5th decile | 4,387 | 2.15% | 8.32% | -6.17% | 32.86% |
| 6th decile | 4,384 | 3.94% | 8.27% | -4.33% | 39.65% |
| 7th decile | 4,384 | 2.74% | 8.07% | -5.33% | 44.30% |
| 8th decile | 4,386 | 5.50% | 8.05% | -2.55% | 48.22% |
| 9th decile | 4,385 | 6.08% | 7.90% | -1.81% | 54.12% |
| Largest | 4,385 | 5.75% | 7.48% | -1.73% | 62.24% |
| Growth Class | Number of firms | Return on Capital | Cost of Capital | ROIC - Cost of Capital | % with +ve Excess Returns |
|---|---|---|---|---|---|
| Lowest Growth | 2,796 | 1.68% | 8.65% | -6.98% | 10.04% |
| 2nd decile | 2,823 | 6.03% | 8.48% | -2.46% | 21.47% |
| 3rd decile | 2,814 | 5.60% | 8.07% | -2.48% | 30.79% |
| 4th decile | 2,803 | 6.33% | 7.88% | -1.54% | 36.72% |
| 5th decile | 2,815 | 4.93% | 7.94% | -3.01% | 44.19% |
| 6th decile | 2,808 | 6.39% | 7.97% | -1.58% | 49.17% |
| 7th decile | 2,816 | 6.44% | 8.06% | -1.62% | 52.35% |
| 8th decile | 2,766 | 6.59% | 8.09% | -1.50% | 53.27% |
| 9th decile | 2,850 | 4.13% | 8.22% | -4.09% | 53.76% |
| Top decile | 2,821 | 9.54% | 8.20% | 1.33% | 45.49% |
| Estimation Approach used | Possible limitations | |
|---|---|---|
| Risk Free Rate | US T.Bond Rate | Cost of equity estimated in US dollars. |
| Beta | Started with unlevered beta for sector & levered up using company's D/E (including leases as debt) | Used only the primary business that the company was in. With multi-business companies, I am missing the effect of oither businesses on beta. |
| ERP | ERP of country that the company is incorporated in. | If company operates in other countries, the ERP should be a weighted average. |
| Default Spread | Used bond rating, if available, to estimate the default spread. Used interest coverage ratio to estimate ratings and default spread, otherwise. | Interest coverage ratios may not capture default risk fully, Bringing in other ratios might have provided more refined estimate. |
| Marginal tax rate | Use the statutory tax rate of the country in which the company is incorporated. | If company operates in many countries, it may be able to place its debt in a country with the higher marginal tax rae. |
| Weights | Current market value of equity and debt (including leases) used for weights. | Insufficient information to estimate market value of interest-bearing debt. |
![]() |
| Download full sector cost of capital spreadsheet |
![]() |
| Download full sector cost of capital spreadsheet |
![]() |
| Download spreadsheet |
| 2/1/08 | 2/1/17 | 1/1/18 | 2/1/18 | |
|---|---|---|---|---|
S&P 500 on date
|
1355
|
2279
|
2674
|
2822
|
S&P 500 on 2/8/18
|
2581
|
2581
|
2581
|
2581
|
% Change
|
90.48%
|
13.25%
|
-3.48%
|
-8.54%
|
Explanation
|
Symptoms
|
Market
Consequences
|
Panic Attack
|
Sharp
movements in stock prices for no discernible reasons, with surge in fear
indices.
|
Market
drops sharply, but quickly recovers back most or all of its losses as panic
subsides
|
Fundamentals
|
Event
or news that causes expected cash flows, growth or perceived risk in equities
to change significantly.
|
Market
drops sharply and stays down, with price moves tied to the fundamental(s) in
focus.
|
Repricing of
Risk
|
Event
or news that leads to repricing of risk (in the form of equity risk premiums
or default spreads).
|
As price of risk is reassessed upwards, market drops until the price of risk
finds its new equilibrium.
|
Date (Close)
|
S&P 500
|
T.Bond Rate
|
Implied ERP
|
Link to
spreadsheet
|
31-Jan-18
|
2823.81
|
2.74%
|
4.78%
|
|
1-Feb-18
|
2821.98
|
2.77%
|
4.78%
|
|
2-Feb-18
|
2762.13
|
2.85%
|
4.88%
|
|
5-Feb-18
|
2648.94
|
2.79%
|
5.09%
|
|
6-Feb-18
|
2695.14
|
2.77%
|
5.00%
|
|
7-Feb-18
|
2681.66
|
2.84%
|
5.02%
|
|
8-Feb-18
|
2581.00
|
2.83%
|
5.22%
|
![]() |
| Download historical ERP data |
![]() |
| Download spreadsheet |
![]() |
| Post on differences in value |
![]() |
| Download industry spreadsheet |
![]() |
| Download industry PBV spreadsheet |
| Sub Group | Number of firms | Dividends | Dividends + Buybacks | Buybacks as % of Cash Returns |
|---|---|---|---|---|
Africa and Middle East
|
2,277
|
$65,767
|
$70,530
|
6.75%
|
Australia & NZ
|
1,777
|
$50,194
|
$56,034
|
10.42%
|
Canada
|
2,850
|
$49,544
|
$80,470
|
38.43%
|
China
|
5,552
|
$317,678
|
$342,282
|
7.19%
|
EU & Environs
|
5,399
|
$320,027
|
$514,279
|
37.77%
|
Eastern Europe & Russia
|
558
|
$21,761
|
$23,522
|
7.49%
|
India
|
3,511
|
$20,701
|
$27,121
|
23.67%
|
Japan
|
3,755
|
$101,760
|
$134,087
|
24.11%
|
Latin America
|
880
|
$40,395
|
$47,907
|
15.68%
|
Small Asia
|
8,630
|
$128,066
|
$148,607
|
13.82%
|
UK
|
1,412
|
$101,605
|
$128,161
|
20.72%
|
United States
|
7,247
|
$486,009
|
$1,049,487
|
53.69%
|
![]() |
| Download full sector data |
| Sub Group | Cash Balance | Cash/Firm Value | Cash/ Market Cap |
|---|---|---|---|
Africa and Middle East
|
$490,475
|
16.13%
|
24.43%
|
Australia & NZ
|
$175,578
|
6.43%
|
11.37%
|
Canada
|
$183,204
|
4.66%
|
8.10%
|
China
|
$2,724,851
|
12.84%
|
21.16%
|
EU & Environs
|
$2,935,769
|
11.85%
|
22.43%
|
Eastern Europe & Russia
|
$112,480
|
15.08%
|
24.34%
|
India
|
$99,190
|
3.31%
|
4.18%
|
Japan
|
$4,185,572
|
34.47%
|
67.73%
|
Latin America
|
$239,664
|
7.84%
|
13.06%
|
Small Asia
|
$841,230
|
9.91%
|
15.19%
|
UK
|
$1,087,286
|
15.80%
|
29.48%
|
United States
|
$2,206,548
|
4.73%
|
7.52%
|
![]() |
| Download spreadsheet |
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| Download spreadsheet |
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| Download spreadsheet |
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| Download spreadsheet |
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| Download spreadsheet |
![]() |
| Source: IFPI |
![]() |
| Source: Spotify Prospectus |
![]() |
| Source: Spotify Prospectus |
![]() |
| Source: Spotify Prospectus |
![]() |
| Source: Spotify Prospectus |
![]() |
| Download spreadsheet |
![]() |
| Download spreadsheet with raw data |
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| Download spreadsheet |
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| Download spreadsheet |
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| Download spreadsheet |
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| Download spreadsheet |
![]() |
| Amazon 10K |
![]() |
| Amazon 10K |
![]() |
| Download spreadsheet |
![]() |
| Download spreadsheet |
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| Download spreadsheet |
![]() |
| Google 2017 10K |
![]() |
| Download spreadsheet |
![]() |
| Crystal Ball used in simulation |
![]() |
| Netflix 10K - 2017 |
![]() |
| Biggest Spenders on Entertainment Content in 2017 |
![]() |
| Download spreadsheet |
![]() |
| Download spreadsheet |
![]() |
| Download spreadsheet |
![]() |
| Source: Raymond James, reported by Variety |
![]() |
| Download spreadsheet |
![]() |
| Simulation run with Crystal Ball, in Excel |
| Netflix | Spotify | |
|---|---|---|
| Number of Subscribers | 117.6 | 71 |
| Annual Revenue/Subscriber | $ 113.16 | $ 77.63 |
| Subscriber Service Expenses (as %) | 18.90% | 79.24% |
| CAGR in subscriber count | 223.93% | 369.86% |
| Value per Existing Subscriber | $ 508.89 | $ 108.65 |
| Cost of acquiring New Subscriber | $ 111.01 | $ 27.30 |
| Value per New Subscriber | $ 397.88 | $ 81.35 |
| Value of all Existing Subscribers | $ 59,845.86 | $ 7,714.28 |
| + Value of all New Subscribers | $ 137,276.49 | $ 20,764.56 |
| - Corporate Cost Drag | $ 111,251.70 | $ 13,139.75 |
| =Value of Operating Assets | $ 85,870.65 | $ 15,339.10 |
![]() |
| MoviePass Economics |
![]() |
| Source: Forrester (through Bloomberg Quint) |
![]() |
| Download spreadsheet |
![]() |
| Global Auto Data |
![]() |
| Global Auto Data |
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| Download spreadsheet |
![]() |
| Download spreadsheet |
![]() |
| Download Tesla Valuation and Dilution Spreadsheet |
![]() |
| Download dilution spreadsheet |
![]() |
| Tesla 10K for 2017 and Tesla 10Q, First Quarter 2018 |
![]() |
| Download Tesla valuation |
![]() |
| Yahoo! Finance |
![]() |
| Central Bank of Turkey |
![]() |
| Central Bank of Turkey |
![]() |
| Central Bank of Turkey |
![]() |
| Central Bank of Turkey |
![]() |
| Private versus Public: Business Perspective |
![]() |
| Private versus Public: Investor Perspective |
![]() |
| For heat map and for raw data |
![]() |
| For heat map and for raw data |
![]() |
| For heat map and for raw data |
![]() |
| For heat map and for raw data |
![]() |
| For heat map and for raw data |
![]() |
| Download full spreadsheet |
![]() |
| Coca Cola 10K for 2017 |
![]() |
| Royal Dutch Annual Report for 2017 |
![]() |
| Valuation & Simulation Output |
![]() |
| Valuation & Simulation Output |
![]() |
| Download spreadsheet |
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| PE Ratio at start of October 2018, using trailing 12 month earnings |
| End of Day | US 10-yr T.Bond | S&P 500 | Implied ERP | Spreadsheet |
|---|---|---|---|---|
| 9/28/18 | 3.06% | 2913.98 | 5.38% | Download |
| 10/1/18 | 3.09% | 2924.59 | 5.36% | Download |
| 10/2/18 | 3.05% | 2923.43 | 5.36% | Download |
| 10/3/18 | 3.15% | 2925.51 | 5.35% | Download |
| 10/4/18 | 3.19% | 2901.61 | 5.39% | Download |
| 10/5/18 | 3.23% | 2885.57 | 5.41% | Download |
| 10/8/18 | 3.22% | 2884.43 | 5.42% | Download |
| 10/9/18 | 3.21% | 2880.34 | 5.43% | Download |
| 10/10/18 | 3.22% | 2785.68 | 5.61% | Download |
| 10/11/18 | 3.14% | 2728.37 | 5.73% | Download |
| 10/12/18 | 3.15% | 2767.13 | 5.65% | Download |
| 10/15/18 | 3.16% | 2750.79 | 5.68% | Download |
| 10/16/18 | 3.16% | 2809.92 | 5.57% | Download |
| 10/17/18 | 3.19% | 2809.21 | 5.56% | Download |
| 10/18/18 | 3.17% | 2768.78 | 5.65% | Download |
| 10/19/18 | 3.20% | 2767.78 | 5.64% | Download |
| 10/22/18 | 3.20% | 2755.88 | 5.67% | Download |
| 10/23/18 | 3.17% | 2740.69 | 5.70% | Download |
| 10/24/18 | 3.10% | 2656.10 | 5.89% | Download |
| 10/25/18 | 3.14% | 2705.57 | 5.78% | Download |
| 10/26/18 | 3.08% | 2658.69 | 5.89%% | Download |
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| Largest Publicly Traded Cannabis Companies- October 2018 |
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| GE Annual Report for 2017 (Invested Capital, allocated based upon assets by business) |
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| Interest Rate Raw Data |
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| Federal Reserve of San Francisco |
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| Interest Rate Raw Data |
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| Apple Valuation & Amazon Valuation in September 2018 |
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| Data, by country |
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| Original Paper: Excellence Revisited, by Michelle Klayman |
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| Paper on cost of capital |
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| Download diversification benefits spreadsheet |
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| Data at country level |
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| Data at country level |
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| Data at country level |
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| Data at country level |
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| Download country level statistics |
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| Download full market cap risk statistics |
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| Download risk data for PE ratio classes |
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| Download data for Dividend Yield classes |
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| Download full industry list |
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| Spreadsheet with valuation |
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| Simulation Results |
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| PBV by Industry (US) |
| Multiple | Key Driver | Valuation Mismatch |
|---|---|---|
| PE ratio | Expected growth | Low PE stock with high expected growth rate in earnings per share |
| PBV ratio | ROE | Low PBV stock with high ROE |
| EV/EBITDA | Reinvestment rate | Low EV/EBITDA stock with low reinvestment needs |
| EV/capital | Return on capital | Low EV/capital stock with high return on capital |
| EV/sales | After-tax operating margin | Low EV/sales ratio with a high after-tax operating margin |
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| S&P 500: Dividends, Buybacks, Mkt Cap and Net Income |
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| All US publicly traded companies; S&P Capital IQ |
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| Dividends and Buybacks: By Industry for US |
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| Market capitalization, as of 12/31/18 |
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| Expected revenue growth in the next two years |
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| Data Update 6 on excess returns |
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| Debt to EBITDA at the end of 2018 |
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| Download debt change, by industry |
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| Debt Details, by Industry (US) |
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| Debt ratios, by industry (US) |
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| Debt ratios, by industry (US) |
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| Lease Effect, by Industry, for US |
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| Lease Effect, by Industry, for US |
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| Uber Prospectus: Page 11 |
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| Uber Prospectus: Page 21 |
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| Uber Prospectus: Pages 21 & 24 |
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| Uber Prospectus: Page 21 |
| Uber Prospectus: F-4 (income statement in appendix) |
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| Uber Prospectus: Page 114 |
| Uber Prospectus: Pages 102 & 103 |
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| Download pricing spreadsheet |
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| Download ARK pricing from Github |
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| Source: Transparency International |
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| Source: Institute of Economics and Peace |
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| Source: UNCTAD |
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| Source: Political Risk Services (PRS) |
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| Source: Moody's Sovereign Ratings |
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| Source: Bloomberg (10-year $ Sovereign Spreads) |
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Source: Damodaran Online (Current Data)
|
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| Prospectus: Pages |
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| EBITR= EBIT + Lease Expense, EBITR&PO = EBITR + Non-lease pre-opening expenses |
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| Prospectus |
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| Prospectus: Page |
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| Add caption |
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| Source: Jay Ritter, University of Florida |
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| Source: Financial Times |
| Levi Strauss | Lyft | Beyond Meat | Uber | Slack | Peloton | ||
| IPO Value | $24.23 | $58.78 | $25.08 | $46.88 | $32.91 | $20.59 | $19.35 |
| IPO Offer Price | $17.00 | $72.00 | $19.00 | $25.00 | $45.00 | $26.00 | $29.00 |
| IPO Open Price | $22.22 | $87.33 | $23.75 | $46.00 | $42.00 | $38.50 | $27.17 |
| % Difference | -8.30% | 48.57% | -5.30% | -1.88% | 27.62% | 86.98% | 40.41% |
| Updated Value | $26.59 | $54.38 | $26.17 | $47.41 | $35.42 | $23.95 | $19.35 |
| Price on 8/10/19 | $18.96 | $38.66 | $25.63 | $142.73 | $29.28 | $25.70 | $23.21 |
| % Difference | -28.69% | -28.91% | -2.06% | 201.05% | -17.33% | 5.59% | 19.95% |
| Spreadsheet | Download | Download | Download | Download | Download | Download | Download |
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| Download raw data on PE ratios |
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| Download raw data on yields and interest rates |
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| Download raw data on interest rates, inflation and growth |
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| Download historical ERP |
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| The Bloomberg Internet Index |
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| Imputed Revenues in 2025 in millions of US $ |
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| Imputed Revenues in 2029 in millions of US $ |
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| Tesla Quarterly Reports & Earnings Call on January 29, 2020 |
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| Simulation Results |
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| Download spreadsheet with annual market data |
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| Download spreadsheet with annual market data |
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| Download historical treasury rates, by year |
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| Download historical treasury rates, by year |
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| Raw Data from Ken French |
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| Raw Data from Ken French |
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| Raw Data from Ken French |
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| Raw Data from Ken French |
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| Source: Damodaran Online |
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| Source: FRED (Federal Reserve St. Louis) |
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| Source: Damodaran Online |
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| Damodaran Online |
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| Download full list of industries |
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| Data on all industries |
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| Download historical implied ERP |
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| Source: Raw Data from Ken French |
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| Source: Morningstar |
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| Download country-level data |
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| Sources: Yardeni, Thomson Reuters, Factset |
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| Download simulation results (Oracle Crystal Ball used in simulation) |
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| Source: NVCA Yearbook |
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| Source: Jay Ritter IPO data |
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| Source: Financial Times |
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(1) To provide perspective on the core principles that govern investing, financing and dividend decisions, and how choices on one of these dimensions can and often do affect choices on the other.(2) To get comfortable with the tools, models and theories that lead to the "right" corporate finance decisions.(3) To understand why managers and owners often choose to deviate from the script and make sub-optimal decisions.